Webinar: Biden to Victory… But Will it be a Blue Wave?

• National and State opinion polls suggest a Joe Biden victory is the likeliest outcome in the U.S. presidential race, with the Democrats just likely to win the Senate race. What are the implications of different election scenarios for the U.S. economy, policy and financial markets?
• Bottom line: Democrat control of the White House and Senate would provide a clean sweep and allow large scale stimulus for the COVID-impacted U.S. economy and structural change in tax and expenditure as well. Healthcare and climate/infrastructure investment would likely be a 2021 priority, with slower change on the relationship with China and Tech regulation. A divided government, namely a Biden victory with Republican (GOP) Senate control or a Donald Trump re-election with Democratic control of the House, would see fiscal measures being much smaller and a constrained structural agenda. The economic recovery would be bumpier. The main difference is that Trump as President would likely be slower in effectively rolling out vaccines than if Biden were elected.
• Market Implications: A Democratic clean sweep would mean a very large budget deficit in 2021 and 10yr yields would see funding pressures. Therefore we forecast 1.8% yields by end-2021 in that scenario (the rise would be more modest in other scenarios). U.S. equities would benefit from fiscal stimulus and we see the S&P500 at 3800 at end-2021. Finally, we would not really change our existing 1.27 EUR/USD forecast for end-2021, as the negative impact of more bullish U.S. equities on the USD would be countered by still higher 10yr yields.