Trump Gains in Florida

With just five days to go until the 2020 US Presidential elections, the uncertainty in the market remains highly elevated and the outcome, incredibly tough to call. Democrat candidate Joe Biden has been comfortably leading Trump in national polls for several weeks, with a comfortable double-digit margin, on average. Additionally, Biden has been leading Trump in the vast majority of swing states. However, over recent days we have started to see a shift in some of these polling results that is worth highlighting here, notably, the reversal in sentiment in Florida.

Florida, which is the largest of the swing states and holds the most electoral college votes, making it the most important in terms of election impact, has been behind Biden since April, at the peak of the COVID pandemic. However, as of this week, the latest polls conducted by RealClearPolitics show that the state has swung back in favour of the president. This is a highly important development and means that Trump is now leading in Florida and Texas, two of the main swing states. For the election junkies out there, it is also interesting to note that the winner of the voting in Florida has gone on to win the presidency in each election that has taken place since 1964.

Reduced Chances of a "Blue Sweep"

With this in mind, there is now a much lower chance of a “Blue Sweep” even if Biden does win the presidency and a divided government which create a much harder path for Biden should he win. In the event that that the democrats win control of both houses, the focus would be on the democrats delivering the huge stimulus program they have proposed, around $2.5 trillion roughly. While Biden has highlighted plans to raise taxes on corporates and high-net-worth individuals, this would likely come at a later stage given the current recession. However, a divided government would mean at the very least, any stimulus package would be greatly reduced in size.

On the other hand, should Trump surprise markets by retaining the presidency for a second term, this again would most likely occur as part of a divided government. Essentially, maintaining the status quo. Attention would once again be on the stimulus package the president has promised, though this would be of a much smaller size than that proposed by the democrats. While stock markets would likely rally initially under the medium-term prospects look weaker given the back-drop of rising second wave fears and a reduced stimulus package. The winner in this scenario is likely to be the US Dollar which should benefit from the lower deficits under the Trump administration.

Technical Views

DXY

From a technical viewpoint. The Dollar index continue its fight to rebound off the 92.62 level. The level has been firm support since early summer and has helped price once again break above the bearish trend line from 2020 highs. The level for bulls to break, remains the 94.61 high which has so far marked the high of the post-wave one recovery.

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