President Joe Biden and former President Donald Trump have secured their parties' nominations, setting the stage for the first rerun of the US presidential election in almost 70 years. With this in mind, we will analyze the likely main policies of each of the candidates and their impact on commodities and other assets.
Although it is still too early to predict the eventual winner, a rematch between Trump and Biden is likely to increase geopolitical and market uncertainties, as public sentiment towards both candidates remains tepid, with little enthusiasm for a rematch. Polls indicate widespread unpopularity for both, but Trump is ahead in the probability of victory according to polls and betting markets.
Ultimately, the candidates' chances and the impact on the markets will probably be guided by whether the US economy manages a soft landing, with volatility swings driven by politics. The historical record suggests that President Biden has a better chance of winning if the US avoids a recession.
Source: Real Clear Politcs
Table 1 shows how the political priorities of the two candidates differ. Basically, Biden signals continuity of policy and a more subtle stance on foreign and trade policy.
In contrast, a Trump presidency could bring more friction, both domestically (through immigration restrictions at a time when the labor market is tight) and to the rest of the world. One of his political priorities is to impose a 60% tariff on imports from China and a 10% tariff on other trading partners, including the European Union.
On the other hand, Trump plans to reduce US corporate taxes, which could be positive for risk assets in general - but especially for US stocks. The impact on financial markets will probably be determined by the sequence of implementation of his policy: will the proposed corporate tax cuts come before legislation on immigration and/or import tariffs?
Source: Standard Chartered
The US election could have major impacts on the energy sector. Trump would seek to undo much of the Biden administration's work on combating climate change if returned to office after the November election, and would launch new efforts to expand fossil fuel production.
While some biofuel tax credit programs are traditionally bipartisan, Biden's SAF grand challenge and other biofuel policies could be at risk in a Trump victory scenario. During Trump's first term, this was illustrated by a series of exemptions granted to refiners, exempting them from complying with the Renewable Fuel Standard (RFS).
