Gap widens as Trump’s options narrow

12th October 2020

Thankfully the President appears to have made a rapid recovery as the pace of his social media releases has attested. Within the past week, the President reversed course numerous times on fiscal stimulus negotiations with the Democrats, ramping up volatility and putting the financial markets into more stress positions than a hot yoga class.

Over the past week, the President called off all stimulus negotiations, then attempted to put together a targeted piecemeal set of smaller agreements, before reversing course again. Finally, he implored both sides to aim higher than the Democrats $2.2 trillion targets. Unfortunately, neither those actions nor his hospital stay has moved the needle of President Trump’s polling, which suggests he is falling further behind Joe Biden, notably in the crucial swing states.

Clearly, the President has bristled at being a patient in the White House and is keen to get back on the campaign trail. He gets his wish this week, having got the medical all-clear to resume campaigning on the road. One unfortunate casualty is this week’s Presidential debate scheduled for the 15th. The President refused to entertain a virtual debate. Junkies of energy-sapping television should fear not though, with the final debate on the 22nd of October still scheduled to go ahead in person.

On the subject of debates, last week’s Vice-Presidential debate was one of a narrowing set of opportunities for the Republicans to move the polling needle back in their direction. Unfortunately, despite Vice-President Pence’s best efforts, and some world-class avoiding answering the question by both candidates, Senator Kamala Harris played a safe game. Her job was really to show up and not stuff up. That she achieved, meaning anything better than a draw meant a Democrat win effectively.

Financial markets appear to be pricing in a Biden victory and increasingly, are comfortable with the Democrat legislative agenda. However, three weeks is a long time in 2020, and more surprises cannot be ruled out. Trading is cautious though outside of North America, as Presidential tweet risk is impossible to model for risk managers and likely to increase in tempo as we get closer to the election date.

National polls collated on www.realclearpolitics.com and www.fivethirtyeight.com suggest that Mr Biden still holds an almost unassailable lead over President Trump. FiveThirtyEight’s collated polling shows Mr Biden’s lead widened impressively at a national level to 10.4% this week. RealClearPolitics has Mr Biden’s lead widening slightly from 8.1% a week ago, to 9.8% as of yesterday. These represent massive increases statistically, and that is despite a Presidential hospitalisation which should have rustled up a few sympathy percentage points.

It is important to note that the headline figures reflect an aggregated number across the country. The huge gains over the past week by the Biden camp underline a definite swing by female and elderly voters towards Biden’s camp, with a deep level of dissatisfaction over President Trump’s handling of Covid-19. With cases surging again in the US, this could well increase the pressure on the President. It will, therefore, be vital for him to be out on the road displaying his rapid recovery and allaying concerns.

A look at the universe of individual polls though, reveals a wide disparity in margins, but favouring Biden overall. More worryingly for the Republicans, the polls are showing the key battleground states are swinging notably to Biden’s favour.

The Senate race remains the critical, yet most-overlooked part of the election. With a majority of 51 seats needed for control, RCP and FiveThreeEight are suggesting a 51/49 seat majority for the Democrats. It should be noted though, that seven senate seats are a toss-up (too close to call). With three weeks to go, even Texas has noted a strong swing to the blue corner although Republicans will likely hold the Lone Star State. Florida, however, looks in real danger of turning blue along with most of the swing states. The Republicans are running out of time, and by all accounts fundraising to turn this tide. Still, the polls were completely wrong on many levels in 2016, so one can never say never.

Markets, for their part, are pricing in a Biden Presidency and a Democrat Senate in addition to a follow-on fiscal stimulus bill. There is complacency in all those assumptions, and the example I like to use is this: look at how many candidates and hostile Republicans President Trump saw off in 2016 to secure the original Republican nomination. He then showed no statistical respect for the polls either, defying them all to win the great prize. Any signs of a turn in fortunes from here by the Republicans will therefore raise volatility in financial markets. And let’s not ever forget the power of the Trump tweet.

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