Macro: Sandcastle economics
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Summary: In this week’s Saxo Market Call, Søren Otto and Saxo Chief Macro Strategist John J. Hardy dissect the market implications of the recent US presidential debate between Vice President Kamala Harris and former President Donald Trump. Below are some of the key takeaways from their conversation, focusing on the debate’s influence on market sentiment, polling, and potential policy shifts.
A shift in betting markets
John Hardy began by noting how betting markets reacted to the debate, with a solid shift in favour of Kamala Harris, bringing the perceived outcome back to complete balance after the odds had recently shifted in Trump’s favour. According to Hardy, Trump initially came across as "stronger and more coherent than expected," but as the debate progressed, Harris "found her stride," sharpening her critiques of Trump.
“Harris sharpened her criticisms of Trump, while he seemed to rely on more repetitive talking points like ‘you’re destroying the nation,’ which resonate with his base but don’t seem to make a significant impact on undecided voters,” Hardy explained.
Impact on undecided voters
Søren Otto raised the point that the debate’s real impact was likely limited to a small group of undecided voters. Hardy agreed, stressing that the majority of voters have already made up their minds.
“This is really about a small group that could swing one way or another,” he said, pointing out that the debate’s influence would be felt mainly among that narrow segment of the electorate.
Harris’s debate performance: better than expected?
Søren asked whether Harris’ performance exceeded expectations, a sentiment reflected by viewers on social media. While Hardy acknowledged that she did well, he suggested that her delivery appeared more polished than in previous public appearances.
“Harris came across as confident and clear, though at times a little rehearsed,” Hardy remarked, adding that this was still an improvement over some of her earlier, less focused performances.
Celebrity endorsements: Taylor Swift's influence
One of the more bigger twists came with Taylor Swift’s endorsement of Kamala Harris immediately after the debate. Hardy emphasised the significance of Swift’s cultural influence, particularly among younger voters.
“Taylor Swift is more than just a pop star. She’s incredibly influential, especially among young voters, many of whom are women,” Hardy remarked. Swift’s endorsement could mobilise a key voting bloc that historically leans Democrat, making her role in this election potentially decisive.
Market reactions: currency movements and the Fed’s role
As the conversation shifted to the markets, Hardy noted that the debate itself did not trigger significant market movements. However, some hawkish statements from a Bank of Japan member during the same period caused notable reactions, particularly in currency markets.
“The Japanese yen saw a strong rally after the BoJ comments, which overshadowed any immediate reaction to the debate,” Hardy said.
He explained that while market participants are keeping an eye on the election, other factors such as today’s US inflation release and Federal Reserve policy are currently more pressing concerns. For example, the Consumer Price Index (CPI) report, released shortly after the debate, would likely have a greater impact on the markets than the political event itself.
FOMC meeting: a key market driver
While the presidential debate did not have much direct market impact, Hardy believes that the FOMC’s decision on interest rates next Wednesday, 18 September, is critical for equities, bonds, and currencies in the near term.
According to Hardy, the decision to cut the policy rate by either 25 or 50 basis points in next week’s FOMC meeting will be far more important for markets than the US election for now. Today’s CPI figure may have an impact on whether the Fed swings one way or the other.
Sectoral implications: Trump vs Harris
Hardy also discussed the potential impact of either candidate winning the presidency on specific market sectors. A Trump victory could benefit European defence stocks and fossil fuels, while Harris’s focus on clean energy and social spending might boost renewable energy sectors. However, he cautioned that “gridlock in Congress is a likely outcome in a Harris victory scenario,” meaning not much will get done from her agenda.
Conclusion: market focus on immediate concerns
Looking ahead, Hardy believes that while the election will become a larger market focus as November approaches, immediate concerns like inflation and the Federal Reserve's decisions will continue to dominate.
“For now, I think the market is primarily focused on more immediate concerns like inflation and the Fed,” he concluded.
The episode ended with a reminder to keep watching both the odds and economic data as Election Day nears, as these will provide critical clues to both political and market outcomes.
Listen to the full episode or subscribe to the podcast here.