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US election too close to call as blue wave hopes fade

US election too close to call as blue wave hopes fade

All of those expecting to see a blue wave sweep for the Democrats have quickly seen this notion disabused as early results come in, with the Republican vote holding up fairly well, and in areas where you wouldn’t normally expect.

The failure of the Democrats to capture the states of Texas and Florida, which they had high hopes of seizing control of, is likely to see the eventual outcome of this 2020 vote go to the wire, as the votes continue to get counted across the US. The Republicans appear to have also held onto Ohio.

Financial markets, which had been hoping for a swift outcome after the uncertainty of the last few weeks, are currently taking the failure of the Democrats to open up a clear lead in their stride. However that could change if we don’t start to see a clear outcome by the end of the week.

Democrats unlikely to take Senate

It also looks highly unlikely that the Democrats will gain control of the Senate, which they had hoped would give them a clean slate and free rein to unleash a multitrillion dollar fiscal stimulus plan.

Despite these setbacks the route to the White House is still open for Joe Biden, however there is the increased prospect that a failure to regain control of the Senate will make him a lame duck President, if he makes it over the line. This means any new fiscal stimulus is likely to be a lot smaller than would have been the case with a blue wave. 

What is particularly disappointing is the apparent failure of the Democrats to make inroads into the Hispanic community, where they should have been popular. It is entirely possible that Republican warnings about the Democrats socialist policies cut through to a cohort who have largely come into the US from countries in Central and Latin America that have failing socialist governments.

The Democrats will also be disappointed that President Trump still appears to be in the running for a second term, despite huge criticism about his decisions with respect to the coronavirus pandemic.

Whatever the outcome of the election now it is clear that the offering put forward by the Democrats hasn’t cut through as much as they would have liked.

Market optimism dwindling

This is already manifesting itself in financial markets which having seen big gains in the first part of this week, and are now seeing a little bit of a pause in Europe, while US stocks appear to be holding their own.

An uncertain outcome may not be the end of the world, as divided governments also mean that politicians will need to compromise to get things done, however the optimism of earlier this week is starting to get scaled back somewhat, particularly in bond markets.

As a result the US dollar is finding a bid and equity markets are sliding back, while US bond markets which had seen yields surge in the past four days in anticipation of a big fiscal bazooka, have rebounded strongly sending yields sharply lower, with the US 10 year down almost 10 basis points.

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