LONDON (Reuters) – The US presidential election, the vote with the biggest impact on financial markets in a busy election year, is still weeks away.
With Democratic Vice President Kamala Harris and Republican Donald Trump locked in a close race to win the November 5 election, we take a look at what's most important in global markets.
EUROPE IN MEASUREMENT
In European Equity markets, Trump's victory could create a crisis in export-heavy sectors, especially German automakers such as BMW (ETR:) but also LVMH and other luxury goods manufacturers as renewed trade concerns increase.
Barclays has warned of a “high single-digit” percentage drop in European earnings should trade tensions start to emerge. Trump has floated plans for a 10-20% levy on almost all imports to boost US manufacturing.
On the other hand, a Harris win would be a better result compared to European statistics. This could provide renewable energy, a potential windfall of resources with major US projects such as Orsted (CSE:) and Iberdrola (OTC:).
However, in the long run, his plans to raise corporate taxes from 21% to 28% could reduce the margins for American companies and European dollar earners alike. Other cuts under Trump are likely to be welcomed on both sides of the Atlantic.
The election could have an impact on the war in Ukraine. Trump and some Republicans in Congress have questioned the importance of US funding for Ukraine's two-year war with Russia, while Democrats have pushed to strengthen Ukraine.
Aerospace and defense stocks have gained more than 80% since Russia invaded Ukraine in 2022.
EXCHANGE OF MONEY
Trade taxes are important for traders of the world's most traded currencies.
The euro, which is trading below September's 14-month highs of around $1.09, is seen as the losing camp if a Trump win means higher global prices.
“A Trump win, in the eyes of the market, would take the euro/dollar down to the $1.05 level, while a Harris win would see the rate move in the opposite direction, above $1.15,” said CIO Mark Dowding of BlueBay Asset Management.
Global risks, especially in the Middle East, which are causing oil prices to rise and hurt economic growth, also make the euro vulnerable, analysts say.
ING added that a Trump win could also hurt the Australian and New Zealand dollars — economies that depend on trade from China, which has been the target of higher tariffs. About 37% of Australia's and 29% of New Zealand's exports are to China, ING noted.
The currencies of Sweden and Norway have also been seen as vulnerable to global trade, while the Canadian dollar could suffer if Harris's win is viewed negatively by the US economy.
CHINA ROULETTE
One of the highest stakes in global markets right now is betting on China, where promises to revive the government have revived investor interest that could be canceled out by tariff hikes or trade wars under Trump.
Investors expect Harris to pursue rate targets and Trump to lean toward aggressive and disruptive policies.
“If Trump wins, the (political) rhetoric against Chinese companies will be negative,” said Edmond de Rothschild international finance manager Christophe Foliot.
That could increase skepticism of China among American investors and strengthen the trend for multinationals to remove Chinese-made goods from their supply chains, he added.
China is facing other challenges from the Trump administration that may limit Chinese companies' access to new technologies, which will limit productivity, Oxford Economics said.
And risk consultancy Eurasia Group said a Trump victory would pressure EU countries to break away from China as well.
Goldman Sachs strategists estimate that Chinese stocks could fall 13% if Trump imposes a 60% tariff on Chinese goods.
But threats of a slowdown in exports could also encourage Beijing to pursue fiscal stimulus with more significant government spending programs.
“Potential new U.S. tariffs on Chinese goods could increase the strength and longevity of (incentives),” Goldman said.
EM ON THE ROAD
Emerging market (EM) stocks are, on paper, poised to shine after underperforming their developed world peers for the better part of a decade. The US Federal Reserve has begun rate cuts and the dollar, food and fuel prices are falling – a big boost for importing countries.
Investors say Harris' win, which signals a continuation of broad policy from President Joe Biden, could provide a boost for stocks.
But a Trump win, coupled with global tariffs, could come down hard on any extreme optimism. Most investors say Mexico, which has strong US trade ties, stands to lose the most; those who bet on a Trump win tend to open the Mexican peso.
JPMorgan has warned investors to remain neutral until the US election risks have passed, and UBS has warned that Trump's high rates threaten a loss of up to 11% in EM shares by 2025.
The Swiss bank also said its EM Risk Appetite index is near a 15-year high, suggesting investors haven't fully priced in the low risk of Trump's tariffs on EM assets more broadly.
