ClockWise: US election takes another twist

A week is a long time in politics and we have another 15 to get through before the US presidential election.

What was a very close race has been roiled over the last fortnight, first by the Trump assassination attempt and now by Joe Biden’s decision to step back in favour of the next generation of Democrat politicians, with Vice President Kamala Harris the front runner.

The initial market reaction to Biden’s announcement has been a slight reversal of the recent Trump trade, with the dollar weakening and US treasury yields dropping a touch. We think the markets will care more and more about this election as time goes on, though, especially if we get into competition over unfunded spending commitments or if Donald Trump ramps up protectionist rhetoric and threatens Federal Reserve independence.

Liz Truss and Emmanuel Macron learnt the hard way that government bond markets are no longer to be taken for granted – and any turbulence in the US bonds could spill over into the highly-valued technology sector, as we saw in 2022.

Chart 1: Kamala Harris picks up the baton

Source: BSource: Bloomberg, PredictIt as at 22 July 2024. Implied probability of who will win the 2024 US presidential election based on prediction market odds.

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