The Morning Commentary: The Economic Impact of a Contested Election
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
The Economic Impact of a Contested Election
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Andrew Kositkun Foreign Exchange Head Trader
President Trump’s path to re-election has narrowed as ballots continue to be counted in the outstanding battleground states. With margins razor thin, contested election risks remain real. In this context, it is important to understand the timeline. The results of the election need to be generally finalized by Dec. 9, which is Safe Harbor Day. This is when states select their Electoral College (EC) voters. In the 2000 election, this date proved important, as it was a key factor in the Supreme Court’s decision to stop the controversial Florida recount. These EC voters will officially cast their votes on Dec. 14, with the next Congress counting these votes on Jan. 6 and declaring a winner. Inauguration Day is Jan. 20 and marks the beginning of the next presidential term.
From an economic point of view, the implications of a contested election depend on the reason and length of the delay. Broadly speaking, there are three scenarios that could happen:
Benign: The delays are due to counting backlogs given the large number of absentee and mail-in ballots, but the results are expected in days.
Contentious: The count is close and results in a dispute about ballot validity and recounts at the state level.
Crisis: Either side refuses to accept the results, leading to a legislative battle and a high level of government dysfunction.
Thus far, Republicans, with a handful of exceptions, have not come out to support Trump’s claims of fraud and a stolen election. This suggests that the most likely contested election outcome skews toward the benign and least economically disruptive side of the spectrum, but the market remains sensitive to the ever-changing landscape.
Regardless of who wins the presidency, government gridlock appears to be the most likely outcome. Under Biden and a divided Congress, the path for policy change is hard. The near term should see a relatively smaller fiscal stimulus package, with state and local aid lower but expanded unemployment insurance and small business aid included. Over the medium term, enacting Biden’s agenda for tax reform and climate change has also gotten more difficult. However, changes on trade, immigration and regulation can be made through the executive branch. Under Trump and a divided Congress, the status quo is expected, including a continuation of trade tensions with the possibility for a larger stimulus bill, as Senate Republicans could be more likely to go along with the president rather than resist him.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
U.S. non-farm payroll beat market consensus, as the jobs number came in at 638,000 versus expectations for a 580,000 gain. While the jobs number beat estimates, it still slowed from September’s number. The unemployment rate dropped to 6.8%, beating estimates for a 7.6% print. This beat on the unemployment rate is especially impressive given the increased labor force participation rate. Overall, this was a strong report.
In the race to control the Senate, both Georgia Senate seats appear likely to go to a runoff, as Republican Senator David Perdue’s support has fallen below the 50% threshold. If this holds, it will trigger a re-run against Democrat Jon Ossoff. The other Georgia seat is already headed for a Jan. 5 rematch. Currently, both parties have 48 Senate seats, with North Carolina and Alaska not called.
Canada’s jobs report beat market consensus, as the report came in at 83,600 versus expectations for a 75,000 print. Gains were mostly in full-time positions (69,000), with the participation rate moving up to 65.2% from 65.0%.
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