(Finance) – 2024 will go down in history as an election year, with a record number of people going to the polls. The high concentration of elections has also caused record volatility on the markets, particularly in Mexico, India and South Africa.
2024 election year
More recently, French President Macron’s decision to call new elections sent French bonds and stocks tumbling, weakening the euro. In contrast, Prime Minister Rishi Sunak’s unexpected decision to call an early election went almost unnoticed in English markets. What will be the impact of the next elections on the European, English and American markets? Steven Bell, Chief Economist EMEA of Columbia Threadneedle, outlines the possible scenarios in the weekly market outlook.
As for the United States, whose election is scheduled for November, there are fears that Trump’s re-election could trigger a surge in bond yields, “although we view this as unlikely; rather we expect Trump to cut taxes and raise tariffs on US imports by 10% on across the board. The net effect on the fiscal deficit may be modest, while on monetary policy, the Fed is independent and although Donald Trump has expressed his intention to fire Chairman Powell, such a move is unlikely to happen. change the real policy. There is also a strong consensus in favor of the existing agreements and the White House is no longer asked to exercise greater control over the central bank, also considering the presence of important legal and other barriers”.
USA unknown: Biden or Trump?
If Joe Biden is re-elected, a fundamental factor “will be the composition of Congress. Indeed, Biden’s efforts to raise taxes have been hindered by moderate Democrats in the Senate, who are very effective despite their slim majority. However, it is important to consider that many of the moderates now present are about to retire and their successors are generally much more left-wing. According to a recent Goldman Sachs conference, a clear Democratic victory could lead to significant policy changes, including a 25% corporate tax rate increase of the 34 Senate seats up for grabs this year, only 5 look set to change hands and 4 of these are held by the Democrats, who need to regain control of the House. So, although a clear victory for the Democrats thanks to the use of radical policies remains a possibility, it is certainly not the main scenario”.
In Europe, “The last elections ended with a significant advance by the far right, which is likely to try to limit the power of Brussels by taking numerous steps backwards on policies affecting climate change and immigration. At the national level, we expect right-wing parties follow the example of the Italian Prime Minister Giorgia Meloni, who has gradually moved towards the centre, in particular, almost all right-wing parties in Europe have abandoned plans to leave the EU, also following what happened in United Kingdom, and the ECB remains strongly independent. “the crazy buying of German bunds seems exaggerated and we do not expect a European financial crisis.”
United Kingdom, Labor towards (clear) victory
In the United Kingdom – the expert further underlines – polls suggest that i Labor will have a landslide victory. The party leader, Keir Starmer, appears to be moderate and cautious, with very ambitious spending plans, particularly regarding investment, and will probably not want to stick to the current government’s unrealistically low spending plans in unprotected areas. Although taxes are all but set to rise, Labor has promised to leave key rates of income tax, insurance and VAT unchanged. We believe the fiscal deficit is improving however and the UK economy is recovering better than expected. Changing the way the Bank of England clears its balance sheet could generate many billions for the Treasury; we therefore expect a large impact on the markets and monetary policy in the United Kingdom with a possible rally in Gilts.
Just today, meanwhile, the spotlight is on Bank of England which is preparing to confirm unchanged interest rates, despite the more than positive data on inflation, which has returned to line with the central bank’s target of 2%.
2024 will go down in history as an election year, with record numbers of people going to the polls. The high concentration of elections has also caused record volatility on the markets, particularly in Mexico, India and South Africa.
2024 election year
More recently, French President Macron’s decision to call new elections sent French bonds and stocks tumbling, weakening the euro. In contrast, Prime Minister Rishi Sunak’s unexpected decision to call an early election went almost unnoticed in English markets. What will be the impact of the next elections on the European, English and American markets? Steven Bell, Chief Economist EMEA of Columbia Threadneedle, outlines the possible scenarios in the weekly market outlook.
As for the United States, whose election is scheduled for November, there are fears that Trump’s re-election could trigger a surge in bond yields, “although we view this as unlikely; rather we expect Trump to cut taxes and raise tariffs on US imports by 10% on across the board. The net effect on the fiscal deficit may be modest, while on monetary policy, the Fed is independent and although Donald Trump has expressed his intention to fire Chairman Powell, such a move is unlikely to happen. change the real policy. There is also a strong consensus in favor of the existing agreements and the White House is no longer asked to exercise greater control over the central bank, also considering the presence of important legal and other barriers”.
USA unknown: Biden or Trump?
If Joe Biden is re-elected, a fundamental factor “will be the composition of Congress. Indeed, Biden’s efforts to raise taxes have been hindered by moderate Democrats in the Senate, who are very effective despite their slim majority. However, it is important to consider that many of the moderates now present are about to retire and their successors are generally much more left-wing. According to a recent Goldman Sachs conference, a clear Democratic victory could lead to significant policy changes, including a 25% corporate tax rate increase of the 34 Senate seats up for grabs this year, only 5 look set to change hands and 4 of these are held by the Democrats, who need to regain control of the House. So, although a clear victory for the Democrats thanks to the use of radical policies remains a possibility, it is certainly not the main scenario”.
In Europe, “The last elections ended with a significant advance by the far right, which is likely to try to limit the power of Brussels by taking numerous steps backwards on policies affecting climate change and immigration. At the national level, we expect right-wing parties follow the example of the Italian Prime Minister Giorgia Meloni, who has gradually moved towards the centre, in particular, almost all right-wing parties in Europe have abandoned plans to leave the EU, also following what happened in United Kingdom, and the ECB remains strongly independent. “the crazy buying of German bunds seems exaggerated and we do not expect a European financial crisis.”
United Kingdom, Labor towards (clear) victory
In the United Kingdom – the expert further underlines – polls suggest that i Labor will have a landslide victory. The party leader, Keir Starmer, appears to be moderate and cautious, with very ambitious spending plans, particularly regarding investment, and will probably not want to stick to the current government’s unrealistically low spending plans in unprotected areas. Although taxes are all but set to rise, Labor has promised to leave key rates of income tax, insurance and VAT unchanged. We believe the fiscal deficit is improving however and the UK economy is recovering better than expected. Changing the way the Bank of England clears its balance sheet could generate many billions for the Treasury; we therefore expect a large impact on the markets and monetary policy in the United Kingdom with a possible rally in Gilts.
Just today, meanwhile, the spotlight is on Bank of England which is preparing to confirm unchanged interest rates, despite the more than positive data on inflation, which has returned to line with the central bank’s target of 2%.