How A Retreat in Biden’s Presidential Elections Affects the USD?
Rumours for a drop out from Biden's presidential candidacy are increasing, so what will happen to the markets if that happens?
Biden’s Declining Performance
President Biden’s performance has been waning with each interview, leading to increasing calls from within the Democratic Party for a potential replacement. While the decision to stay or step down rests solely with Biden, the current betting favorite to be the nominee according to PredictIt is Kamala Harris.
Campaign Dynamics
When individuals donate to the campaign, they are contributing to the Biden/Harris campaign, which currently has a war chest of $250 million. If Kamala Harris takes over, she retains these funds; if another candidate steps in, the donors will be refunded. This financial disparity presents a significant advantage for Harris: Kamala +$240 million vs. Anyone without funds.
Harris as the Nominee
Assuming Biden steps down, potentially this weekend, and endorses Kamala Harris, the Democratic National Convention in the middle of August will be crucial. No nominee is officially chosen until then, so a viable strategy for them might be to allow Harris to utilize all the funds and assess the poll results by early August. Harris might prove to be the right choice, but there’s also a possibility of having to pivot again. The primary consideration is whether Harris can win and, crucially, whether she can deliver the House. Historically, Democrats were favored in House polls, polling higher than Biden.
Market Reactions
A key factor to watch is the reaction of Treasury rates, which jumped immediately following discussions of a potential Republican sweep. This indicates the market’s pricing of a possible shift towards more tax cuts and larger deficits under Republican control.
- Clear Majority (Any Party): More deficits, faster growth, greater inflation.
- Divided Congress: Stalemate, expiration of Trump’s tax cuts, slower economy, lower inflation.
Focus on the House
Ultimately, the critical question isn’t just whether Kamala Harris can win the presidency, but whether she can secure the House for the Democrats. The House holds significant power over the budget, and maintaining control there is crucial. Any shift in the Democratic candidate at this point could potentially aid in retaining control of the House, though Harris could also underperform. This complexity is why markets have remained relatively unconcerned about a possible political shake-up this weekend.
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