The uncertainty could last several days if the majority must be decided by the outcome of the elections in the West (California, Arizona) to the extent that some states accept postal ballots that arrive up to 4 days after the election. ‘election.
Although not all American states have yet rendered their verdict, the results at this stage leave little doubt about the identity of the 47th president in the history of the United States who will indeed be D. Trump, as have already announced several American press agencies. He has a sufficient lead in key states to secure a majority of 270 seats in the Electoral College, on the strength of his decisive victories in Pennsylvania, Georgia and North Carolina. D. Trump notably benefited from the crisis of confidence among Americans regarding the economic situation of their country, more than 50% of them having indicated that this was their main subject of concern according to exit polls. polling stations.
The Republicans also ensure control of the Senate, which will facilitate the appointment of federal judges and heads of government agencies, possibly including that of J. Powell’s successor as head of the Fed in 2026. On the other hand, It is still too early to identify the winning party in the House of Representatives, with Democratic candidates showing greater resilience so far compared to K. Harris’s scores in their respective states. The uncertainty could also last several days if the majority must be decided by the outcome of the elections in the West (California, Arizona) to the extent that certain states accept postal ballots which arrive up to 4 days after the election. Investors therefore risk waiting for these results before increasing their positions on the financial markets given the crucial importance of this issue for the implementation of D. Trump’s program. The control of the two Houses of Congress in fact conditions the future of its tax reform, which must lower the corporate tax rate from 21 to 15% and the anticipation of which largely explains the rise in the stock markets. American stocks today. D. Trump should, however, at least sustain the tax reductions for households and businesses introduced in 2017 beyond 2025.
Two scenarios therefore remain on the table at this stage:
- A Republican presidency and Senate but a Democratic House of Representatives
- Total control of all three chambers by the Republicans
In the first specific case of a divided Congress and in the absence of ambitious tax reform, the hopes of additional support for the American economy on which some investors are counting risk fading and slowing down the upward momentum of the financial markets. actions. This will be all the more marked as D. Trump will then focus all his attention on the other aspects of his program, which risk fueling new increased inflationary pressures.
More generally linked to the Trump presidency, while inflation is already struggling to return to the Fed’s target, it could even accelerate again. If investors are mainly monitoring the risk of customs tariffs, the most inflationary measure of D. Trump’s program lies rather in his desire to remove millions of immigrant workers from the job market even though it is already under pressure . The ratio “number of open positions / unemployed people” is in fact still greater than 1 and is likely to rise again if this policy is implemented, which will contribute to maintaining salary increases and therefore that of underlying inflation. The trade war desired by D. Trump, against China (60% taxes on all its products) but also against the rest of the world (universal tax of 10% on all products) is also likely to fuel a new inflationary wave . Remember that historically customs tariffs always result in price increases on the products concerned, including during the 2018-2019 episode, with the difference that the American economy today displays a much greater capacity to generate of inflation.
All these elements therefore risk calling into question the success of the Fed in controlling it and could lead it to slow down its current monetary easing. The American central bank will undoubtedly not take political issues into account at its meeting on November 7, preferring to wait until it has a clearer picture of the winner’s economic priorities, and will therefore proceed with a 25 bp cut in its key rate. However, as the inflationary impact of the Trump program is confirmed, it could partially waive the 100 bp reduction envelope that was anticipated in the latest Fed report. However, we must remain attentive to the risk on the independence of the Fed given the desire displayed by D. Trump to interfere in the decision-making of the institution, although it will be difficult for him to call into question the presidency of J. Powell before the end of his mandate in 2026.
This significant adjustment of the Fed’s monetary policy was only partially anticipated by the financial markets and its integration will continue to fuel volatility in sovereign rates both through the inflation component and that of real rates. If American stock markets will be able to count on the positive effects of tax reform on results to continue to progress in the case of a Republican Congress – at least in the short term –, the impact will be more ambiguous in the event of a split of power. The rest of international stocks, however, risk remaining under pressure in both cases, particularly those in Europe facing the risk of tariff barriers. The specter of the trade war should, however, support the dollar against all currencies, as will the Fed’s repricing. We are therefore reducing our investments in the global EM zone while maintaining a more constructive view on China where the coordination of budgetary, fiscal and monetary stimulation can support this zone. We are also maintaining a neutral approach to equity markets, in a period marked by greater volatility in rates and geopolitics. Finally, the downward trend in oil should accelerate, weakened by the determination of the new American president to increase oil production in the United States. The impact will not be direct to the extent that American producers remain mainly guided by their objective of generating a better return for shareholders, but the removal of environmental standards and authorizations to drill on federal lands should have a marginal effect on the increase in production. This could further precipitate the fall in the price of oil as OPEC could choose to retaliate with a volume war to avoid losing additional market share.
