How Will a Joe Biden Presidency Affect Financial Markets?

December 16, 2020 | AtoZ Markets – Now that the US Presidential Election is over and Joe Biden its winner, the shift has focused on how the next 4-years terms will impact financial markets. As compared to Donald Trump’s reign, major shifts will occur across many sectors, as should have been expected from a Democratic President.

The performance of the US dollar, foreign relations, and other topics such as climate change or social justice will take the center stage. On top of that, the new president will need to deal with the COVID-19 pandemic, as there are close to 15 million cases in the USA, combined with record-breaking daily new cases and deaths.

Alt-text: Joe Biden Presidency and financial markets

Mounting pressure on the US dollar

Due to its acknowledged commitment to higher fiscal spending, the Joe Biden Presidency is expected to mean more pressure on the US dollar. The global reserve currency already faced a big drop in 2020 and prospects are not encouraging looking ahead. High unemployment and an uneven economic recovery will require more stimulus from the Fed and this would very likely be the agenda of the new president.

Although US dollar weakness is good for stock and index trading, numerous consequences might show up in the long run, as the US debt-to-GDP is now near the WWII peak. High fiscal spending will mean the budget deficit won’t narrow anytime soon, prompting the Federal Reserve to keep its accommodative stance in place, until the average inflation will be above but close to 2%.

Climate plan

Changes will occur when it comes to climate policy. Joe Biden recognized that he is against the Green New Deal, but proposed a $2 trillion plan extending over 4 years and wanting to achieve a carbon-free electricity sector and a greater focus on environmental justice.

This approach will very likely create new investment opportunities in sectors such as renewable energy, electric vehicles, and agriculture, supporting the transition towards an environmentally friendly economy. The most important roadblock comes from the regulatory side, given the US Congress is expected to remain in Gridlock over the next 2 years. Republicans had already shown opposition towards this plan and are very likely to block any funding bill that will be on the table.

ֶEase of geopolitical tensions?

Another aspect that could weigh on financial markets has to do with geopolitics. The Joe Biden presidency is expected to bring more predictability, which will be an encouraging sign. On the flip side, the rivalry with China won’t take a break, as the tariffs will remain in place.

The rising of China as a dominant powerhouse, threatening the international system of rules created mainly by the USA would be on top of the agenda for all US presidents, regardless of political color.

With that in mind, although some relief could be noticed across financial markets since the election ended, in the longer run, geopolitics will play a leading role in influencing economic activity not only in the US but across the globe.

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