Chief Investment Strategist and Chief Economist
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President Trump’s COVID positive adds an unpredictable twist to the US election and policy drama. We continue marvel at the US economy’s ability to adapt to the challenge of the pandemic.
News that US President Trump and the First Lady tested positive for COVID-19 rocked world financial markets overnight. The issue raises many questions, but we would caution about jumping to strong and lasting conclusions. There are possible impacts on the election and US policy. But just as the virus has highly variable and unpredictable health effects on individuals, one might see the same for this news event.
As Figure 1 below shows, prediction markets priced in an increased probability of a Biden victory after Trump’s health announcement. US equity futures have dropped 1.3% on the news, with US Treasuries and the US dollar rising slightly on risk aversion.
Trump derided heavy precautions for Covid infections as recently as during his debate against Vice President Biden on Tuesday. He has held in-person campaign rallies for supporters without masks or social distancing. News of the President’s infection will now highlight the increased health risks for the country and strengthen the hands of those arguing for a more cautious approach to economic re-opening.
At the margin, the news may move Republicans toward greater stimulus efforts. It is unlikely to mean a delayed US election, which would require consent of the Democrat controlled House. (We would similarly expect no delay in Senate confirmation of Supreme Court Nominee Coney Barrett, though any movement on political timing should be closely watched.)
While cancelling in-person campaign events, President Trump and his doctor said he would maintain all of his duties and control of government during his isolation over the next 14 days.The severity of symptoms for those contracting the virus ranges widely. While the mortality rate for men of the President’s age has been far higher than for the average of the population – near 7% - the President might also have only a mild case. One simply cannot predict if or how Covid will impact President Trump’s activities.
Comment: we believe news of the President’s Covid infection will inject greater caution into the US public approach to Covid.
This will encourage delays in reopening efforts which already face winter challenges to social distancing. It raises the chances of a stronger fiscal response, though still likely after the election. It will strengthen arguments for Biden’s more cautious approach to Covid. Still, news developments move very fast and unpredictably. We should not discount that this story will be seen differently or largely ignored weeks from now.Read Global Strategy Bulletin