2020 Elections: Biden widens gap against Trump, why that may trigger a market bounce

A batch of polls conducted after the dust settled from party conventions show Biden enlarging his lead.
President Trump may push for a larger fiscal package to increase his chances.
Markets have room to rise after the recent downward correction.

Yohay Elam FXStreet

"It's the economy stupid" – that comment around Clinton's 1992 election campaign is where President Donald Trump is hoping to beat challenger Joe Biden. Republicans have been reluctant to support another generous package – and even reduced their offers to below $1 trillion – after the encouraging jobs report.

August's Non-Farm Payrolls statistics showed the unemployment rate sharply fell to 8.4% – far better than expected. However, they may change their calculous after looking at recent worrying polls for their standard-bearer.

Providing more stimulus could win votes and help Trump be seen as capable on handling the economy. He is far behind on two other issues that matter to Americans – handling of the virus and race relations. Despite touting "Law and Order," polls have shown that voters trust Biden to provide calm rather than Trump.

Moreover, the president reportedly called described dead soldiers as "losers" and "suckers" – a message that is incompatible with supporting the military nor the police.

Boosting the economy could distract attention from these topics – and also shore up equities, which have been correcting. The president partially measures his success on the performance of stock indexes.

Trump trails in battlegrounds

Raven Pack's election monitor shows Biden is set to flip five states from Democrat to Republican" Pennsylvania, Michigan, Wisconsin, Florida, and the latest to switch its preference is North Carolina. That would give Biden a 108 electoral vote win – higher than Trump's margin in 2016.

Nate Silver's FiveThirtyEight is showing Biden has a 74% chance of winning, up from 71% when the model was launched in early August. That means Trump received no convention bounce. The latest push toward the Democrat came from an NBC poll showing a nine-point lead for Biden in Pennsylvania, a key battleground state that Trump carried in 2016.

Source: FiveThirtyEight

RealClearPolitics is pointing to a Biden lead of 7.1% in national polls, mostly unchanged from several weeks ago. The RCP Average does not include the latest Ipsos poll pointing to a 12-point gap.

Source: RealClearPolitics

The Economist's model is showing sliding chances for a Biden victory – but he still has a broad 83% probability of replacing Trump at the White House according to the magazine's model.

Source: The Economist

Conclusion

Markets tend to prefer full Republican control of Congress and the White House – allowing for deregulation and lower taxes. However, there is still time ahead of the elections. Currently, investors are concerned about the lack of emergency federal help – most of that lapsed at the end of July.

With diminishing chances of re-election – and perhaps a delay in obtaining a coronavirus vaccine – the president may now opt to push his fellow Republican fiscal hawks toward compromising with Democrats and boosting the economy. That may boost stocks, at least in the short term.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold advances modestly; targets $4,150

Gold prices manage to reverse three consecutive daily declines, trading just below the $4,150 mark per troy ounce on Wednesday. The precious metal’s recovery comes amid a slight drop in the US Dollar, mixed US Treasury yields across the board and a widespread cautious tone from the US-Iran front.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything

Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.