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3 Oct 2020

Econ Digest

Money and capital markets may become volatile…Close attention must be paid to the US President’s illness

Money and capital markets fluctuated following the news that US President Donald Trump had been diagnosed with coronavirus (COVID-19). Risky assets experienced sell-offs, while the direction of the US Dollar was mixed (it largely depreciated against the Yen but appreciated against other currencies).

 

KResearch views that President Trump’s illness may not significantly affect his popularity as a candidate for the 2020 US presidential election, because the contest is between two political parties, each with completely different policies and standpoints. Therefore, Americans, who tend to remain loyal to their political party of choice, may not change their minds on whom to vote for. However, more undecided American voters may lean towards Mr. Joe Biden, the Democratic presidential nominee, following the first presidential debate. In addition, it is highly unlikely that Mr. Biden’s supporters would switch to supporting President Trump just because they are concerned about the President’s health.

 

The key variable before the US presidential election will be President Trump’s illness. If his symptoms become severe, the Republican Party may not be able to easily change their candidate due to the limited timeframe and the selection process. Otherwise, if President Trump recovers from his illness, the key variable will switch back to being the conclusion of the election results and who the person to serve as the next president will be. The process might be protracted until January 2021, as President Trump has previously declared that he will not accept the election results if he loses.

 

Although the uncertainty from the pre- and post-election variables will have an inevitable impact on the money and capital markets, KResearch views that the Federal Reserve (Fed) will monitor the US presidential election results and may consider monetary tools, or may ease its monetary stance at an appropriate time, should there be any political issues affecting the US economic recovery.

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Econ Digest