US Musing: The 2016 Presidential Election - TDS
Millan L. B. Mulraine, Deputy Chief US Macro Strategist at TD
Securities, suggests that as the US primary elections head into the
homestretch, Republican Donald Trump and Democrat Hillary Clinton have
emerged as the likely candidates for their respective parties.
“The composition of the electoral map suggests that the outcome will be determined by a short list of battleground states including Florida, Ohio and Michigan. Although the policy position for the candidates are still in their formative stages, a clear but non-traditional contrast can be seen in their respective positions on a number of issues.
The lack of movement in fixed incomes suggests that the market is largely pricing in the status quo or a Clinton Presidency. We expect the market to react disproportionately if the odds of a Trump Presidency rise. The knee jerk reaction would be a bear steepener, wider TIPS breakevens and higher implied vols as the market will price in greater deficits, fiscal stimulus, a softer dollar and greater inflation risk premium.
Until more clarity emerges over the prospective candidate platforms, the USD is prone to trade on a soft footing in the interim but whether the USD will be undermined via capital outflows will ultimately hinge on Congress’ support on the more contentious issues - which we think will be hard to come by – leaving macro and broader monetary policy developments very much in the driver’s seat.”