FNArena’s Weekly Insights – October 28 2024
In Weekly Insights this week:
Dealing With Risk
By Rudi Filapek-Vandyck, Editor
It’s roughly one more week before Americans vote in person on who will be their next President, but don’t hold your breath, it’s more than just likely the world won’t know the definitive outcome until days after the event.
And that’s assuming Kamala doesn’t win and team Trump starts its carefully constructed strategy to contest the election outcome.
Markets usually don’t like uncertainty. I doubt whether they will like such an outcome, at least in the initial phase.
Of course, Trump might win and then the next question becomes: what about Congress?
Either president with a divided Congress is usually the market’s preferred outcome as it limits the room for dramatic changes. If Trump wins, investors will have to weigh up the future benefits from lower taxes and less regulation (as promised) against the negative impacts from import tariffs (as promised too).
In direct conflict with common economic theory, Trump has made it clear he loves tariffs, and not only for cheap Chinese products. Is it possible bond yields rising this month can be partially explained by investors hedging their risks? The answer is probably ‘yes’ but both candidates are likely to further increase budget deficits, and that probably requires higher bond yields as well.
Nothing is 100% straightforward this year. The opposition in Queensland has just achieved a landslide victory while in Japan the Liberal Democratic/Komeito coalition has lost its majority in parliament for the first time since 2009. Before the election on the weekend, such an outcome had only been given a 35% probability, but it has happened regardless.
Common logic and history suggest high inflation and elongated pressure on household budgets make it a lot harder for government incumbents to get re-elected. In the example of Japan, the ruling party had also been damaged by a scandal about a secret slush fund that facilitated party members misappropriating funds from supporters.
It’s not a great celebration for democracy when that same LDP/Komeito coalition might now align with other conservative parties and still form the next government, albeit likely with a new prime minister.
Everybody makes her/his own choices when faced with short-term uncertainty. Whatever is right or wrong often only becomes apparent when looking back in hindsight. To those that like to take some risk off the table or otherwise make portfolio adjustment: there’s still time.
The other key events pre-election next week will be US corporate results with the likes of……
