Bye then, Biden

• Kamala Harris replacing Joe Biden as the Democratic candidate has limited implications for markets in the near-term. Trump remains the favourite for now.

• In the prediction markets, Republican ‘clean sweep’ remains the most likely election outcome, even if the odds have moderated over the past week. Especially House elections remain difficult to call for now.

• Over the coming weeks, we think that the fading ‘Trump trade’ and not-so-dovish Fed could set the tone for shakier risk sentiment and stronger USD FX.

While the Democratic National Convention is still four weeks away, Kamala Harris has already secured a firm majority of the delegates (2668 out of 3979, according to Associated Press) with no one contesting her bid for now. She was the clear runner-up in the latest democratic primary polls before Biden’s announcement and was able to gather impressive $81 millions of campaign funding within only the first 24 hours with strong support from the grassroot level (see BBC). For context, the sum nearly matches the level of remaining funds from Biden’s campaign ($96M, which she will also get to use).

In the limited number of swing state polls including Harris, her performance in July has been generally on par with Biden, which helps explain the rather modest reaction in the markets, but also leaves her firmly behind Trump. Predictions markets price her odds of winning the presidential elections around 40%, which is close to Biden’s odds seen before the 1st debate.

Harris’ low approval rating has been a constant concern for Democrats already before last weekend. During her relatively short career in mainstream politics (she was only first elected for US Senate in 2016), she has struggled to build a convincing public image with firm views on key issues.

Republicans have accused her of mishandling the border during her vice presidency as immigration has rebounded over the past two years. She has also lacked presence in discussions regarding past years’ key foreign policy questions (see Politico). On the other hand, she has taken a stronger stance on key questions for liberals, such as protecting abortion and minority rights, but critics have pointed out conflicts with her earlier more conservative stance as the attorney general of California (see NY Times’ in-depth article from 2020). While Harris was initially seen as a potential candidate already for the 2020 presidential elections, her campaign sizzled out well before Iowa caucuses.

When it comes to economic policies, Harris is seen as left-leaning centrist, whose administration would likely continue on Biden’s footsteps. She would likely protect the key cornerstones of ‘Bidenomics’, such as investments subsidies for green transition, and support issues such as tax credit for families. Harris has openly criticized Trump’s earlier tax policies, and especially the corporate tax rate cut of 2017. In the past, we have argued that US fiscal policy stance is likely to remain supportive for growth irrespective of the election result, even if policy focus areas could change, which could also help explain the rather muted market reaction to the announcement.

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