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Contested result is biggest risk for markets

Written by Ronald Veerman | 4 minutes
SUN 18-10-2020
The growing likelihood that the US election will turn into a disputed outcome, which could take weeks or months to determine who will be president of the United States for the next four years, could be dramatic for financial markets.

"The high risk of a disputed result has hardly been priced in on the stock markets, but it will have very large effects", writes Saxo Bank economist Steen Jakobsen in his Q4 Outlook of Saxo Bank, which has been the parent company of BinckBank since last year. . While Jakobsen estimates the chance of a direct profit for Trump or Biden at around 25 percent, he sees a 50 percent chance of an unclear or even disputed ballot box result.

Volatility and uncertainty
In that case, Jakobsen foresees not only sharp falls on the stock markets, but also an enormous increase in volatility in the financial markets, especially when the uncertainty persists for a long time. With a collapsing dollar and a run on gold. Below is a summary of the effects expected by Saxo Bank in the scenarios possible after the elections on November 3. Jakobsen assumes that the Democrats will most likely retain power in the House of Representatives and, if Biden wins, may also be able to gain control over the Senate.

According to Jakobsen, the American elections are therefore the greatest political risk in decades. Not only because of the current economic situation plus increasing inequality and social unrest, but also because of the policy response to the deep corona crisis. "Normally a pandemic or ecological crisis should result in an adjustment of our economy, but instead everything is used to avoid having to change," said Jakobsen, pointing to negative interest rates and almost endless support from governments and central banks.

Lack of vision and change
Jakobsen therefore wonders whether the financial markets should be happy at all with a profit for one or the other presidential candidate. "They are two old men and neither of them has a vision of the future" The Saxo Bank economist does not expect any major changes after it becomes finally clear who the winner of the election is. “Both Trump and Biden will be spending massive amounts of money, seeking support from the Fed, and neither will implement major reforms. Unfortunately, the role of the central banks remains decisive, ”said Jakobsen. The full Saxo Q4 Outlook, including analysis of the currency and commodity markets, can be consulted via this link


Ronald Veerman

Ronald Veerman is a financial expert at BinckBank. Before that he worked as a financial journalist in Den Haag, Brussel and Amsterdam and as chief editor of the main financial newspaper De Financiële Telegraaf (DFT).


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