Super Tuesday: What we are looking for in today’s vote.

Macro 8 minutes to read

John Hardy

Head of FX Strategy

Summary:  Fully a third of the Democratic Party delegates are at stake in the Super Tuesday primary elections today across fourteen US states. The market impact may prove minimal as markets are distracted with the coronavirus outbreak and policy response over the next 24 hours. But the results could be critical for establishing whether Sanders can win or a brokered convention is the overriding risk.


The Super Tuesday US Democratic presidential primaries are upon us today, together with their haul of delegates that represent just over a third of the total for the entire campaign season, as fourteen states, including the two most populous states, California and Texas, are set to vote. This is a pivotal day as it could make it clear whether Bernie Sanders can win the nomination outright or if are at risk of limping toward a “brokered convention” in mid-July. We believe that Sanders is the only candidate who will be able to turn out the young vote and take on Trump head-on in November (a view not shared by the Democratic establishment!). An establishment candidate, in particular Joe Biden, may be easy pickings for the Trump steamroller.

For now, we will be looking for three takeaways from today’s slate of Super Tuesday results:

1. Is Bloomberg’s candidacy even relevant now?

The Super Tuesday primaries are the first, and may be the last, test for Michael Bloomberg’s candidacy, as he has not been on the ballot in the four early primaries (which only represented about 4% of the total delegate count). One of the ironies of Bloomberg’s late entrance in the race is that he did so in order to provide a centrist alternative to what appeared a bumbling and stumbling Biden late last year. At the time, the two most progressive and left-leaning candidates were the ones surging: Sanders and Warren. Now, ironically, Biden has found his stride after a blowout result in South Carolina at the weekend and after Klobuchar and Buttigieg bowed out of the race and both endorsed Biden. Buttigieg’s endorsement in particular carries some weight, and practical, centrist voters may have changed their mind about splitting their vote between Biden and Bloomberg now that the slate of candidates has been so thoroughly winnowed. Bloomberg is polling up to 20% in some states, but are those results merely a sign of “availability heuristic” from his ad-spending blitz or a concern that Biden wasn’t viable as a candidate – two considerations that may change in some voters’ minds in short order given the Biden endorsements and his overwhelming South Carolina result. If Bloomberg wins very few or no delegates today, he could bow out quickly and would likely mobilize funding to support Biden’s candidacy.

2. What the heck, Warren?

Elizabeth Warren’s popularity has faded irrecoverably since late last year, but she is hanging tough for the moment and, as she polls anywhere from 10-15 or more percent, she could still provide plenty of boost to Sanders’ results if she finally bows out and endorses Sanders. She has made it clear that she is not in favour of Biden: “ A Washington insider will not meet this moment” she said this week. She also has had a tiff with Sanders on stage at one debate and was the most vocal in coming out against Bloomberg in the two recent debates, so either she remains stubborn or endorses Biden or is bidding for leverage in a brokered convention – leverage she won’t really have if she can’t pull above 15% and reap delegates. In the wake of Tuesday’s results, perhaps one of the last hopes for Sanders to achieve an outright majority of candidates is for Warren to exit and endorse Sanders.

3. Sanders can’t achieve critical mass, ergo brokered convention?
The overriding risk for the Democratic result in November is that the Democratic party is hopelessly divided between the pro-establishment, moderate, mostly suburban faction that favors incrementalism and a turn away from Sanders- and Trump-style populism or any radical change on the one side, and on the other side an aggressive, young, disenfranchised progressive hard left that demands real policy revolution. If Biden proves the candidate, the risk is that disenchanted Sanders supporters will stay at home on election day, just as they did in 2016 when Hilary Clinton was the candidate. If Sanders emerges the victor, the establishment fears, the independent voters in the middle will be lost to either Trump or the same turnout apathy. We are less convinced of the latter.

As for Sanders chances, I will watch the California results in particular – it is the most populous US state and a key test of the “rock the vote” principles of Sanders’ campaign and one of the most progressive voting blocs in the US. If Sanders underperforms the polls and fails to win an absolute majority in California, the odds of the brokered convention or perhaps even more so, a Biden victory, rise rapidly.

What’s in it for markets?
The coronavirus should be occupying far more of our attention at the moment than the latest plot twists in the Democratic nomination process, even if political outcomes for the Democratic party and at the November election could prove critical.  The only outcome that will possibly elicit a strong market response (negative for risky assets, negative for USD eventually) would be a very strong result for Bernie Sanders.

As an aside, the worse the coronavirus impact hits, the more relevant the eventual Democratic nominee becomes, on the assumption that Trump can’t pin a poor response to the disease outbreak and disruptive impact on growth and markets on the Democrats (He is trying very hard, but has a tough starting point, sitting in the White House as he does and having made embarrassing reassurances on the course of the disease will look even more embarrassing if conditions worsen).  Stay tuned, in any case, US politics from here until November will be important for market participants to watch.

 

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