Last week’s Biden V Trump debate on CNN, raised many questions about President Biden’s ability to lead the USA for the next four years, as his performance came under much criticism from Democrats and Republicans alike.
Isabel Albarran, Investment Officer at Close Brothers Asset Management, has shared the following analysis:
US politics
While UK politics dominates the attention of the UK media, things are heating up in the US. The first debate between incumbent President Biden and former president Trump took place last week, with Biden at times appearing to lose his train of thought.
This performance has hurt Biden’s poll ratings. While Trump had been two points ahead in the polls since the start of the year, this gap began to narrow, and then close, in mid-June. However, after the debate, Trump has regained the lead in polling by one to two points. More stark still is the move in betting odds, with Biden’s probabilities of winning the Presidency, and even the Democratic nomination, falling sharply.
Polling crashes such as this have been recovered in the past, for example by Obama versus Romney. However, talk of the Democrats replacing Biden has grown since the debate. This would not be straight forward – at this point, only Biden himself can opt to remove himself from the ballot paper. While there are a number of possible alternative candidates, campaign funds would only be accessible if Vice President Harris is selected as the Democratic nominee, an unlikely prospect given her low polling scores.
The mechanism for a change in candidate would differ, depending on whether it occurred before or after the Democratic National Convention. At the Convention, Biden could release his delegates, and allow them to decide a new nominee. After the convention, selecting a new candidate could take place at the Democratic National Committee, but this would leave the selection to quite late in the campaign.
In terms of US investment implications, these are likely to loom into focus for markets in a more meaningful way as the election approaches. Fortunately for markets, either a Democrat or Republican victory is likely to be tolerable for markets. Trump would be expected to increase spending, which could support growth but would also increase borrowing, while a Democratic win could see some increases to taxation. Control of the Senate and Congress is also worth consideration – single-party control of both the presidency and congress will allow greater flexibility with law-making.
US economic data
While US politics looks choppy, US economic data has been better behaved. Last week’s Personal Consumption Expenditures Price Index (PCE) print showed inflation slowing in May, falling to 0% month-on-month, from 0.3% in April. This translated to an annual rate of 2.6%, a slowdown from April’s 2.7%. Within the all-important core basket, inflation slowed to 0.1% month-on-month, from an upwardly-revised 0.3%. All of these prints were in line or marginally below consensus expectation, reflecting softness earlier in the month in both consumer and producer price inflation, components which feed into the PCE index.
May’s PCE print, coupled with broader economic data which shows signs of slowing, helps to make the case for interest rate cuts from the US Federal Reserve. Market pricing has been pushed out considerably from the start of the year, with a first cut now expected as late as November. However, if data continues to slow, a case could be made for a cut as early as September.
