Markets greet Biden presidency with sigh of relief
Markets have celebrated a return to political normality after a five-day vote count in the US presidential election finally yielded a result over the weekend.
Joe Biden on Saturday was elected the 46th President of the United states after winning the major battlegrounds of Pennsylvania and Nevada, booting incumbent Donald Trump out of the White House.
The flip from red to blue has been greeted as “an end to four years of predictability”, after a tumultuous Trump presidency culminated in nationwide Black Lives Matter protests and the highest coronavirus death toll in the world.
Global stocks rose to a record high this morning as investor optimism over Biden’s victory helped equities extend last week’s gains.
MSCI’s All-Country World Index rose as much as 0.5 per cent, surpassing an intra-day high set on 3 September.
Meanwhile, London’s FTSE 100 gained as much as 1.62 per cent in the first half hour of trading, rising to 6,005.78. The midcap FTSE 250 rose 1.71 per cent to 18,223.88.
“Stocks in Asia continued an exuberant rally, on hopes a Biden Presidency would thaw trade relations, and that appears to have had a knock on effect on the FTSE 100 which has seen a post-election bounce this morning,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“The overall sentiment washing through markets is one of relief that a US President has been declared, though there are sure to be lengthy legal challenges ahead.”
Trump’s grump
Trump has refused to accept the result of the election, and has claimed an outpouring of mail-in ballots in favour of his Democrat rival is proof of wide scale “electoral fraud”.
Biden yesterday insisted federal officials “will escort [Trump] from the White House with great dispatch” if he refuses to concede.
But analysts have insisted Trump’s refusal to accept the result has had no effect on the joyous moods of markets.
And while the election result bore no fruit for the Republican, hope remains for the Republican party in the form of the US Senate.
Though a final result is unlikely to be declared until next year, markets have celebrated the assumption that the Senate race is within reach of the GOP, after the party won key races in Iowa, Alabama and South Carolina.
“While the control of the US Senate is still to be determined, markets are reacting as if Republicans will continue to hold this part of Congress,” said Hussein Sayed, Chief Market Strategist at FXTM. “If this is true, taxes are likely to remain at current low levels and interest rates will stay near zero for a long time.
“That is the best environment for growth stocks, particularly the tech sector. Hence, they are continuing to outperform the broader market.”
Market outlook
Near-term market concerns for a Biden presidency will likely be over the prospects for a “lame duck” fiscal package, Trump’s legal quibbles, and who will get posts in the Biden administration to deal with the pandemic, said Paul Donovan, economist at UBS.
Markets have baulked at the fact that Biden may struggle to push a big coronavirus-related fiscal stimulus package through Congress. Whilst a rescue package is still possible, the unlikelihood of a larger package has amped up pressure on the Federal Reserve to act, meaning markets will be following stimulus talks extremely closely across the lame duck period between now and Biden’s inauguration in January.
Meanwhile, long-term market concerns will be “environmental policy (including foreign leaders rushing to hug a tree to win favor with the incoming administration) and rising polarisation and prejudice, which risks damaging US growth,” said Donovan.
In a last-ditch effort to plump his presidential feathers, Trump last Tuesday confirmed the US had withdrawn from the Paris Agreement on climate change. Biden has said the US’ re-entry will be one of his first priorities as President.
Brexit
But securing a US-UK trade deal after Britain formally leaves the EU on 1 January is far lower down on the Democrat’s to-do list, which has sparked relative unease among UK investors.
“An incoming Biden administration is certainly not going to offer an easy path to a trade deal between the UK and the US and could even determine the shape of relations between Britain and the EU,” said Streeter. “Biden has already expressed disapproval of proposals for the UK to potentially break international law on certain aspects of the withdrawal agreement, which is likely to concentrate minds at Number 10.”
Biden has publicly rebuked Boris Johnson over Brexit, and joined speaker of the House of Representatives Nancy Pelosi in lashing out at the PM’s plans to rewrite the Withdrawal Agreement.
In September, Biden tweeted: “Any trade deal between the US and UK must be contingent upon respect for the [Good Friday] Agreement and preventing the return of a hard border. Period.”
Johnson’s Brexit legislation is expected to suffer a heavy defeat in the House of Lords this afternoon, risking an early disagreement with Biden and potentially souring the first phone call between the two leaders.
A spokesperson for the Prime Minister last week admitted Johnson has never met Biden.
“In terms of Brexit, the trade deal talks continue in London with both sides… trying to clear most of the sticking points,” said Naeem Aslam, chief market analyst at Ava Trade.
“The sterling is trading higher against the dollar today, but that is chiefly due to the dollar index’s weakness. The Sterling-dollar pair has crossed the level of 1.30, currently trading at 1.31 and any improvement in the Brexit negotiations is likely to positively influence the currency.”