With less than four weeks to go, Joe Biden is ahead in the national polls in the race for president (fivethirtyeight, updated 6 October). Betting markets put Mr Biden’s probability of taking the presidency from Donald Trump at 61%. While betting odds indicate the House of Representatives looks likely to stay under the Democrats’ control, the Senate outcome is less certain as a handful of seats could determine which party holds a majority there. This has big implications for how easily policy changes can be made, whoever wins the presidency. 

We examine five scenarios and their implications for the economy, rates, credit, FX, gold, emerging markets, trade, and equity markets. 

Much of the market’s energy is likely to be focused on two scenarios in particular, perhaps because they imply the greatest scope for a sizeable market impact: these are a clean sweep for the Democrats, and the risk of a delayed election result.  

Two other scenarios consider a divided Congress, whether with Joe Biden or President Trump in the White House; both are likely to carry less potent policy change implications. The fifth scenario – a Republican clean sweep – is garnering less attention as it is ascribed only a small probability in opinion polls and prediction markets. 

The prospect of a clean sweep for Joe Biden and the Democrats has a sizeable probability per the opinion polls. It would place Joe Biden in the strongest position to deliver on his election campaign manifesto. In our view, the initial market reaction of the various asset classes to any result will largely hinge on risk appetite and the extent to which the outcome was priced in or not, come election day. There is some ambiguity about whether risk appetite will be buoyed by the prospect of more government spending or unnerved by the prospect of higher taxes and regulation. We expect risk-off to dominate at first. In FX, this would suggest stronger safe haven currencies, including the USD, and weaker high beta plays. US Treasury yields would likely remain in their ranges, and there could be initial gold weakness if the USD gains on a rise in risk-off sentiment. 

If it is just a logistical matter of days to count postal votes, a delay would not have much of a market impact. But with a contested outcome, the resolution to which was slow in arriving, then we would move to a risk-off tone as well.