US Elections: Two different candidates, two different outlooks – Nomura

Research Team at Nomura, suggests that currently, Hillary Clinton appears to be on track to win the White House but the race has narrowed considerably since the third debate and there is a reasonable path for Trump to garner the necessary 270 electoral votes.

Key Quotes

“Given that the outcome is far from certain, in this report we work through how the economy and financial markets may evolve under each presidential candidate in the early days of their respective administrations. In our scenario analysis, we assume that the Republicans retain control of the House and that the Senate will be nearly evenly split.

If Clinton wins, we expect status quo. The economy should evolve in line with our current outlook (growth near 2% and the unemployment rate steadily declining) and no change in the political gridlock in Washington.

If Trump wins financial conditions are likely to tighten, at least for a time and businesses and households would delay or reduce spending as there will likely be a substantial amount of uncertainty around what a Trump presidency would entail. If tighter financial conditions persist, the FOMC could delay raising rates in December. Beyond the initial reaction, there is a higher probability of fiscal stimulus given a Republican-controlled Congress. But Trump would also likely impose strong trade protections which we believe would be highly inflationary. Taken together, the Fed is likely to quicken the pace of tightening in the face of higher inflation.”