Richard Buxton has said isolationism remains a powerful force among the US electorate as Democrat nominee Joe Biden fails to secure his anticipated landslide and the US election hangs in the balance with potentially days or even weeks of uncertainty ahead.
At 11.30am GMT, Biden had cinched 238 electoral college votes compared to 213 for Donald Trump. While Biden still had a wider path to victory, he had not delivered the so-called “blue wave” that markets and polls had been anticipating and it looked likely Republicans would retain the senate.
Buxton (pictured) said in the short term markets will be disappointed that fiscal stimulus is likely to scaled back under this election scenario. With a Republican-controlled senate, Biden would essentially become a “lame duck” president unable to push through his key policies, including $1.6trn (£1.2trn) in federal funding for new infrastructure projects.
But Buxton said there were longer term implications from the unexpectedly tight election race.
“Regardless of the eventual outcome, one thing remains clear: isolationism remains a powerful force among the US electorate, and much of Trump’s 2016 agenda still resonates powerfully with voters in a deeply divided nation.”
Biden would be the best outcome for UK equities
Buxton also said a Biden win would be better for UK equities, despite the conventional view that prime minister Boris Johnson is more closely aligned with Trump.
This is because a Democrat win would push the UK to pursue a closer economic and trading relations with the European Union. “The UK’s trade ties with Europe remain more important than with the US so a closer relationship with the EU would be welcome news for investors in listed UK companies, who would be able to turn their attentions towards the scale of the ‘reflation trade’, rather than enduring sleepless nights over ongoing uncertainty surrounding the final shape of Brexit.”
The UK may even be able to “have its cake and eat it” if Biden rejoined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Buxton said. The UK is trying to belatedly join the multilateral trade deal and if both countries joined, it would obviate the need for a separate agreement with the US, he said.
The reflation trade would be supported by further quantitative easing in the UK and fiscal stimulus in the US.
“On the possibly heroic assumption that in six or 12 months’ time a combination of better news on a vaccine or mass testing means we can look beyond the coronavirus and lockdowns, the reflationary forces we could reasonably expect to see exerting themselves in both the US and the UK may take the shine off the shares in some of the technology-focused businesses that have been the darlings of the stock market in recent years, as investors increasingly turn their attentions to the potential attractions of ‘recovery stories’ in those stocks that have struggled through the pandemic and Brexit-related uncertainty.”
