How the U.S. election might impact Europe’s markets, economy and trade

The upcoming U.S. election matters not just for the American individuals and the nation’s economy; the result of the vote in November will likewise have a considerable effect throughout the Atlantic.

Europe’s monetary markets and financial potential customers will be impacted by whoever gets in (or stays) in the White House after the vote, according to financial experts and strategists.

U.S. politics are a “serious risk” to Europe’s economy, according to Berenberg Bank’s Chief Economist Holger Schmieding. He cautioned today that an objected to election result might result in “serious uncertainty and significant street protests” in the U.S. by advocates of the losing side.

“If the result is close in key swing states, the lengthy count of postal ballots would become decisive. This would delay the result and may well open the door to legal and other complications. In the end, the Supreme Court may even have the final say,” he kept in mind.

This, he stated, “could temporarily hit markets and confidence beyond the U.S.”

The possibility of an objected to election is being ignored by markets, according to Steen Jakobsen, primary financial expert at Saxo Bank, and his group.

“We fear that the U.S. election is the biggest political risk we have seen in several decades,” Jakobsen stated in a note recently. He described 3 possibilities in between now and Inauguration Day on Jan. 20, 2021: an objected to election, with a possibility of 50%; a tidy sweep by Democrat candidate Joe Biden, with a possibility 25%; and a win by incumbent President Donald Trump, with a possibility of 25%.

“Our job is to define consensus vs. reality and here we feel that the market is not properly pricing in both the risks of a contested result — the biggest risk for the markets, whether as a result of the contest itself or Trump’s objections and attempts to cry foul — or a clean sweep by Biden. Since both are a risk, this means volatility could rise dramatically,” he composed.

Another concern at stake is trade. If Trump is re-elected there are worries he might begin a trade war with Europe, as he has actually formerly threatened to do, declaring in 2015 that Europe has “in many ways” dealt with the U.S. “worse” than China.  

A trade war would be harming to both the European and U.S. economies, though the EU stands to lose more if tariffs are troubled its exports to the States.

The EU had a 153 billion euro ($180.3 billion) surplus with the U.S. (implying it exports more to the U.S. than it imports) in 2019, according to information from Eurostat. EU exports to the U.S. in 2019 deserved around 384 billion euros, whereas U.S. imports to the EU deserved around 232 billion euros.

In addition to the trade of items and services, “some U.S. tech giants made a significant share of their global profits on the EU market. In short, U.S.-EU relations matter a lot for both sides,” Berenberg’s Schmieding kept in mind.

He stated that the EU is “the only region which, in mercantilistic terms, could strike back at the U.S. almost like-for-like in a genuine trade war,” and this may avoid the U.S., if Trump were re-elected, from starting one.  

The NBC News nationwide ballot average recommends that Biden’s lead over Trump has actually topped 10 points. Biden is presently gathering assistance from 52.2% of signed up citizens, according to NBC, and Trump is at 41.6%.

A triumph for Biden might bring with it another difficulty for Europe, nevertheless, according to Schmieding. He stated that a “blue wave” Democratic sweep might “potentially pave the way for major tax hikes in the U.S. and excessive labor market regulations that may curtail U.S. trend growth and affect export-oriented Europe.”

He stated that Biden as president might reverse Trump tax cuts, include additional tax boosts and pursue an expansionary costs and social policy.

“Many observers would see this as negative for markets and U.S. trend growth. Given the importance of the U.S. for the global and European economy and its markets, this could potentially have negative repercussions beyond the U.S.,” Schmieding included.

However, not everybody concurs with this analysis. UBS Asset Management’s tactical property allotment group stated the a Biden-led boost in taxes and public costs might provide markets outside the U.S. an increase.

In a note recently, they anticipated that the most likely result of the election was a Democratic tidy sweep, putting the possibility of a “blue wave” at 55%. They worried that U.S. financial costs was “more important to the macroeconomic and the global market outlook than tax policy changes.”

A Biden success would be favorable for equity markets outside the U.S., they kept in mind. “We ascribe 75% odds to Democratic nominee Joe Biden winning the presidency … This outcome is likely to be associated with a weaker dollar and better relative performance for equities outside the U.S.,” they stated.

“Any lack of immediate clarity on the election outcomes would not be a positive for risk assets, but we are not convinced that this dynamic is a reason to substantially reduce such exposures. That this volatility already appears to be priced in raises the bar for any political disruption to meaningfully roil markets.”