The US election, uncertainty – and your money

Investors and markets dislike uncertainty. Consequently, the current uncertainty over the outcome of the US election may be putting the brakes on recovery.

The US economy is still (by most measurements) the largest in the world, and arguably the most significant for global trade. The personality and policies of the tenant of the White House can be crucial to the global economy, particularly a global economy already struggling with Covid.

So who will eventually get in, will there be further disruption while it is decided – and will there be an effect on your own personal finances?

What is happening?

America went to the polls on Tuesday. In a speech early on Wednesday morning, President Donald Trump declared he had won, despite the fact votes in many key states were still being counted and the race was actually far from over.

He asked for vote counting to stop and the situation to be taken to the Supreme Court, making it clear he will not accept defeat.

The election now hangs on the ‘rust belt’ of Wisconsin, Pennsylvania and Michigan where postal votes could take days to count and the projected results are too close to call.  The president has already insisted that these postal votes are subject to fraud – hence his challenge to the usual electoral process.

The effect was immediate volatility in markets as traders tried to find safe harbours, and the futures market struggled to achieve consensus about what would happen next.

With the possible scenarios now including civil unrest from an unhappy electorate, it may be some time before normality returns even after the results are accepted by both candidates.

Investors are now worrying more about the eventual outcome of the election than the ongoing international trade war – and under the US Constitution, the result might not be confirmed until the middle of next January.

Trump or Biden?

Although Biden could still emerge victorious, the landslide predicted by pollsters, and which boosted equity markets, has not materialised.

Trump has certainly held key battleground states, including Texas and Florida, making the race a lot tighter than investors would have liked. Democrats are projected to retain control of the US House of Representatives, but not the Senate.

Either man could win – but both will inherit problems including the Covid crisis. Not only has the disease cost human lives, it cost the US its longest economic expansion and bull market on record. The result has been the worst economic downturn in roughly a century.

Both believe they have the solutions, but while they seem to sit on opposite sides of the political fence, both Trump and Biden have surprisingly similar policies when it comes to trade. Biden, like Trump has promised to create millions of manufacturing jobs and to reduce America’s dependence on China. His “Made in America” plan seems to echo the “Make America Great Again” manifesto of his opponent. Whoever gets in, the outlook for international trade may be very much the same.

The effect on the UK economy

The precise impact of the US election on the UK economy will depend largely on whether new policies and trade agendas will affect international markets and relations.

In 2018, the US was the UK’s number one export market for goods and services, with a total trade flow of approximately £190.5 billion pounds.

British investors active in international markets may have their foreign holdings concentrated in the US. The current uncertainty means markets are depressed – but an eventual recovery in the US may provide a boost to markets and the value of their holdings.

Donald Trump was supportive of a US-UK free trade agreement, while Biden has not expressed any view. In May and June, the US and UK commenced virtual negotiations with further rounds planned. But with 2020 drawing to a close, and the aftermath of the election taking up the full attention of the US the possibility of reaching a trade deal this year looks unlikely.

The lack of a trade deal could mean a further brake on recovery – although the UK’s import-heavy economy is more resilient to the impact of US tariffs than countries such as China and Germany, which export more than they import.

What should you do?

Events in the US are still unfolding. The impact on the UK may be small compared to the effects of Covid and Brexit, but whether or not you have an internationally diverse portfolio, it might provide another reason to reassess your current financial plans.

It may be time to call us at Continuum, and see what changes you need to make to your own economic policies.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products or investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

References:

https://www.ft.com/content/3d568b3f-741a-4784-9cb6-de5ca2efe961

https://think.ing.com/amp/article/us-presidential-election-g10-fx-scorecard/

https://www.forex.com/en-uk/market-analysis/latest-research/the-impact-of-the-us-election-on-the-uk-economy/