WEEK AHEAD: SEPTEMBER 28

Short Description

The US election is five weeks away and political uncertainty is already setting in. Tuesday this week is a big one on the election calendar as Donald Trump debates Joe Biden. I discuss what effect it could have on markets and rundown the week’s economic calendar. Thanks! Rich

Video Script

First Trump-Biden presidential election debate - THE WEEK AHEAD (Sep 28-Oct 2, 2020)

Hi everyone, I’m previewing the week ahead with a focus on the first Presidential debate between US President Donald Trump and Democratic hopeful Joe Biden before the US election- and what it could mean for forex and stocks. I will also of course rundown the week’s important economic releases.

Did you know that the first presidential debate was in 1960 between John F Kennedy and Richard Nixon but they didn’t become a regular event until after 1976? Funnily enough in that first debate in 1976 – a sound problem – rather awkwardly left both candidates standing at the podium in silence for nearly half an hour while technicians tried to fix it – I guess neither one wanted to be the first to sit down.

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It’s a slow start on Monday but then we have Japanese and German inflation data on Tuesday followed by retail sales in Japan, which is expected to see a big drop-off in August. Wednesday evening – 9pm Eastern Time - is the US Presidential debate but before that we have a series of PMI data from China and German retail sales and unemployment data as well as ADP payrolls. Next we have the Tankan index in Japan followed by September’s ISM manufacturing PMI. Then the big one for our first Friday of the month is of course US non-farm payrolls.

So before we talk about the debate specifically, it’s worth first trying to decide- which candidate is better for markets. If you cut through the noise, for me it’s a question of stability, higher taxes and a slower economic reopening from Biden versus more uncertainty, lower taxes and a quicker reopening under Trump. From a market’s perspective that’s 2 to 1 in Trump’s favour. Lower taxes are a big deal – Goldman Sachs estimates S&P 500 earnings in 2021 would drop by 12% because of Biden’s tax plans. Still markets hate uncertainty – and Trump’s trade war with China hurt market sentiment in 2019. 

OK let’s assume for a minute that Trump is a more market-friendly candidate. That’s fine but keep in mind one of the sources of uncertainty in markets right now is the possibility of a delayed result because of all the postal voting. The polls right now point to a Biden election victory. If Trump wins the debate, that should tighten the polls, which makes an uncertain election result more likely.

Now, who will win the debate? Well according to polling after the 2016 debates, President Trump lost 2% while Hilary Clinton gained 2%. So if that’s any guide, Trump may be a slow starter in Presidential debates. What’s specifically different about this situation is that Biden has not made many public appearances since the pandemic started. This is tactical. Trump is such a marmite candidate – you love or you hate him – and Biden is hoping enough people hate Trump after four years and a virus-induced recession that he gets in the White House. After the debate it could become not ‘Trump’ versus ‘not Trump’ but Trump versus Biden – which either opens up or tightens the polls depending who comes out on top.

Now let’s take all I’ve just said with a big grain of salt because remember how in 2016 everybody was saying Trump was bad for markets? Well the stock market sank on the news he had won before turning around and heading on a historic rally.

Right thanks everyone, good luck trading and make sure to subscribe to our channel so you don’t miss the next video.