Global Elections and Economic Implications: A Closer Look at Key Issues and Market Trends

As global voters express frustration over the rising cost of living, the upcoming U.S. presidential election between Joe Biden and Donald Trump is set to have significant implications on various policy areas. Both candidates have contributed to swelling fiscal deficits through pandemic borrowing, leading to concerns about inflation and the need for the Federal Reserve to keep rates high.

Potential changes in U.S. trade, immigration, and energy policy under either administration could further impact inflation. Trump’s proposed protectionist stance on trade, including tariffs on Chinese goods, contrasts with Biden’s current policies favoring domestic production. Changes to legal immigration could also affect inflation as the U.S. faces a shrinking working-age population.

In addition, the Inflation Reduction Act and its low-carbon transition investment incentives are in focus for energy policy. Depending on the outcome of the election and control of Congress, revisions to the IRA could impact funding for tax cuts.

Meanwhile, elections around the globe have already seen significant outcomes, with Prime Minister Narendra Modi securing a third term in India and Mexico’s ruling coalition scoring a resounding win. The UK’s upcoming election in early July could also have implications for addressing structural issues like weak productivity growth.

Overall, investors are advised to stay overweight on U.S. stocks and monitor key policy areas in the presidential election. On a longer-term horizon, government bonds in the euro area and UK are favored for expectations of lower interest rates.