Despite Biden continuing to build a lead in the polls and betting odds, markets have not yet shown any impact from his potential election. Economists at TD Securities layout a few factors which may explain this situation.
Key quotes
“Too soon to trade the election: With the economy dealing with a global pandemic and significant fiscal and monetary stimulus, the market may not be as focussed on the election. This is reasonable since polls tend to be less reliable this far out. However, we are approaching the point where markets may begin to pay attention to polls.”
“Loss of credibility in polls or conventional wisdom: Polls and market expectations have not always had the best predictive track record — a point that was driven home after the 2016 election.”
“Forced moderation due to divided government: Markets may be pricing in a split government under a Biden presidency, believing that many of his more left-wing proposals may not see the light of day. However, the odds of a Blue Wave have recently risen, which increases the risk of a more extreme swing in policy action.”
“Proposals are only a guidepost: Markets may also believe that Biden's proposals may only be intended to bring the left-wing of the party inside the Democrat tent. This hints at a belief that Biden will moderate his views following the election. However, given the increased partisanship in recent years and the need to include more extreme members of the party to move legislation along, there is an increased risk that Biden does not waver from the more left-wing agenda, eventually hurting markets.”
Reprinted from fxstreet.com, the copyright all reserved by the original author.
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