Markets can ‘sleep through’ the US presidential debate as the event is unlikely to produce bold new initiatives, UBS says

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  • Markets can “sleep through” the US presidential debates without the fear of missing out as the event is unlikely to produce anything of substance, UBS’ global chief economist said on Tuesday.
  • Specifically, investors in Europe and Asia do not have to lose sleep over the debate, because it’s rarely the place where new policies are launched, Paul Donovan said in a podcast. 
  • “The spin after the debate is what matters,” Donovan said. “Perceptions of performance and whether candidates were able to change the views of floating voters does make a difference.”
  • However, a financial analyst pointed out that “markets are going to find it increasingly difficult to ignore the impending vote, which is now only 5-weeks away to the day.”
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The US presidential debates are unlikely to produce “anything of substance” since bold new policy initiatives are usually not announced at televised debates, Paul Donovan, global chief economist at UBS Global Wealth Management said on Tuesday.

President Donald Trump and his Democratic opponent Joe Biden are scheduled to begin their first face-to-face clash in a three-round series from late Tuesday. 

But according to Donovan, investors in Europe and Asia can afford to “sleep through the whole thing quite comfortably” without the fear of missing out.

Debates rarely launch new policies,  at most, they highlight political-point scoring. “The spin after the debate is what matters,” Donovan said. “Perceptions of performance and whether candidates were able to change the views of floating voters does make a difference.”

Polarized support for the two candidates suggest that voters are not going to change their views, and the number of those on the fence is lower than four years ago, but enough to affect the election.

“With several states within the margin of error for opinion polls, even a small number of undecided voters matters to the outcome of  the election and of course the outcome is something that markets care about,” Donovan said.

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On Tuesday, Germany’s benchmark DAX index fell 0.6%, the UK’s FTSE-100 fell 0.6%, and the Euro Stoxx 50 fell 0.4%. Futures on the S&P 500, Dow 30, and Nasdaq fell between 0.1% and 0.3%. 

Separately, trade data to be released Tuesday is expected to show the deficit widened to -81 billion from -79.2 billion, offering investors more incentive to sell out the US dollar.

Donovan, who has written a number of books including “The Truth About Inflation,” said Trump’s trade taxes on both US consumers and companies have not changed import patterns. In some cases, however, it has altered supply chains.

 “This is in part because the taxes were generally absorbed by reduced profit margins for American companies, and so consumers had little reason to change that pattern of demand as price increases were limited,” he said.

Contrary to Donovan’s point of view, Connor Campbell, a financial analyst at SpreadEx, said: “The COVID-19 pandemic has largely obscured the US election from the view of investors. From Tuesday night onwards, however, the markets are going to find it increasingly difficult to ignore the impending vote, which is now only 5-weeks away to the day.”

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