US Election Countdown: T-minus three days – Election Night 2016 vs. 2020
Head of FX Strategy
Summary: In this Election Countdown post, we look at the market reaction to the 2016 US election shock as it unfolded and ponder whether this year could see a result emerging as early in the night as we saw then.
This is the latest in a daily series of articles I am running through Election Day on Tuesday and for as many days after that day that are necessary until a result is clear. Today I offer a brief look at the key moments of the vote counting in 2016 in which it became clear that Trump had a strong chance of winning and how quickly the knee-jerk reaction to that reality quickly changed direction.
USDJPY on Election Night, 2016
It is clear on the chart above that the market decided something was beginning to crystallize just after 21:00 Eastern Time in the US (02:00 GMT / 03:00 CET). And that something was that the increasing high odds of a shock Trump win were emerging around that time. Over the rest of the night, nearly everything tilted clearly in his direction and the reaction deepened. The initial reaction to the odds that Trump was winning was a classic “uncertainty” trade, with JPY rising fastest in FX against a weaker US dollar, US treasuries spiking higher and equity futures slumping badly. But within hours, everything reversed, with the US dollar rallying across the board, US treasuries collapsing and equity markets launching a vertical ascent while gold was jettisoned. The message? The market was celebrating the strongest mandate for a president to put through his platform in a long time as it was clear that Trump would have control both houses of Congress and was ready to cut taxes and deregulate – powerful supply side medicine that would prove highly stimulative for risk appetite on this pro-growth agenda.
Will things prove so clear cut this time around? It is tough to say – before this latest equity market sell-off, the market may have risen a bit on the hope that a clear result would be a good thing relative to chaotic contested election scenarios. But if that clear result is that we are facing a strong Blue Wave outcome and both houses of Congress in Democratic hands, then it makes sense to see more caution on fears of unwinding of the very factors that were so supportive under Trump (general regulatory revamp, green agenda, at least a partial reversal of corporate tax cuts, higher income taxes on high earners and higher capital gains taxes).
But a strong Blue Wave result doesn’t fit with a strong advance in the US dollar we have seen this past week (supposedly, the Blue Wave scenario was supposed to mean far more fiscal stimulus and far more negative real interest rates in the US on higher inflation) so we’re not sure if this latest sell-off is election-related or related to the uncertainty on the short-term prospects for a new stimulus deal, or perhaps even Covid-19 related, in that the US may end up in a new shutdown scenario by late winter if Trump and regional leadership refuse to enact restrictions over the lame duck period until a Biden inauguration in late January, meaning that the virus could become even more disruptive in the meantime and require an even more extensive lockdown once the Democrats take charge.
Clearly, we won’t really know anything for sure until a result is clear and we are on the far side of any contested election chaos scenario.
Also see my recent post on how the market may react to the election result this time.
So what happened in that key hour and more on Election Night in 2016?
The time around 21:00 Eastern US time (02:00 BST / 03:00 CET) on Election Night 2016 saw a few things shaping up that began tilting the odds increasingly clearly in favour of Trump. It was clear at that time, for example, that after 91% of the vote in Florida was coming in, that Trump’s widening lead was becoming insurmountable. It was also clear that results from North Carolina and Ohio were grinding inexorably in favour of Trump, as he took the lead around this time in these two states. In the following two hours, it likewise became clear that Trump was scoring strong results in the most shocking of places: Michigan and Wisconsin, “Blue Wall” states that had not gone Republican in decades and where pre-election polls suggested low odds for Trump. Given the election map at that point in the night toward 23:00 Eastern US time, a Trump win in these two states would likely send him over the top, even without him winning Pennsylvania, which was also a close call.
What will happen on Election Night, 2020?
This time around, the time frame above from 2016 (possibly even starting more than an hour earlier on early vote count speed) is likely highly relevant for a possible outcome emerging on Election Night, but only provided there is a very strong Democratic showing. Florida in particular is very fast to report its results and should have a large portion of its votes available immediately and up front. Yes, the early votes will tilt very Democratic there, but the state is still very fast to report its full results. In fact, Florida is such an outlier on reporting speed and the uncertainties around the partisan tilt are so prevalent elsewhere that any early call will be highly reliant on projecting what is happening in Florida. Still, the tilt in other areas is still worth considering – for example, the early closing states like Indiana (VP Mike Pence’s home state) and whether the margins are consistently tilting there in a different direction from 2016, especially in specific counties where high result percentages are available (the CNN coverage does a lot of high granularity county-to-county coverage and compares with the previous election).
If Florida itself is a clear nail-biter with well over 90% of the vote counted there, get ready for a very long night and even a long week or more on possible contested election scenarios.
Election Night resources
If you are looking at what to watch on Election Night to track the unfolding results, here are a few ideas. Besides the usual live coverage of major US news networks (via YouTube) like ABC and others, the CNN coverage should also be available there as it was in 2016, when it tended to be heavy on the live result updates. Also, look for written live blogs on major newspapers and TV networks, but also on FiveThirtyEight.com.
The FiveThirtyEight website offers the most comprehensive guide to each state’s election results, both in terms of poll closings, but also with a spin on the likely speed of counting and the partisan patterns that will unfold on election night due to different rules in early- and mail-in voting. A simpler, but very nice graphic overview on 270towin.com website is also available on poll closing times. Also note their great, interactive electoral map you can use as results come in or to test different scenarios.