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The US election

Tuesday, November 8, 2016 17:51
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The one good thing about the US election is at last we have an event other than Brexit that people think matters and may move markets. Even the commentators with Brexit distorting glasses stuck on their noses might notice this. I have kept out of the merits of the candidates, as the USA does not need foreign help to make up its mind. I am certainly not going to go into the intricacies of their characters and the various charges made against each, in what has been a campaign dominated by character issues on both sides. It is, however, now appropriate to look at what each candidate might mean for the wider world economy and markets.

There has been precious little proper analysis of what the two different candidates would do if elected. Investors say they want Hillary Clinton to win, and suggest markets might rally a little if she did. They usually go on to say they think her proposals on healthcare and banking would be negative for those sectors. They tend to dislike her more protectionist rhetoric post the Sanders challenge, her more regulatory stance, and even her greater hawkishness towards the Middle East than Mr Obama. In other words, they are mainly optimistic about her winning and the consequences of her victory in general terms, yet they seem to dislike much of the small print.

They have the opposite view of Donald Trump. They are highly critical in general terms. They are worried by his stance on migration of labour, by his tougher rhetoric towards Chinese trade and by his hostility to various trade deals, as well as often referring to character issues. They expect a Trump victory to lead to a loss of confidence and a sell off. They tend to ignore his proposals to cut corporate and individual taxes, to seek to repatriate large sums of offshore company cash, and to increase infrastructure spending. Hillary Clinton also wants to give an infrastructure spending boost. Several of Mr Trump’s proposals would normally be welcomed by investors if coming from someone else.

Either candidate is likely to seek to reflate the economy some more, by spending more and borrowing more in the short term. Mr Trump would seek to supercharge this with large tax cuts. Both may experience difficulties in getting their various economic packages through the Congress and Senate, but the direction of travel towards more reflation is clear. Given the reasonable performance of the US economy this year, this may generate modestly higher interest rates. It should also be helpful for the wider world economy.


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