As the 2024 US Presidential election approaches, ING has conducted an analysis outlining three potential scenarios and their respective impacts on the financial markets.
These scenarios explore the outcomes of different political configurations and their influence on domestic and foreign policies, trade, and the broader macroeconomic landscape.
1. Trump clean sweep
In this scenario, Donald Trump wins the presidency, with Republicans taking control of both the House and Senate. This leads to a renewed emphasis on expanding the 2017 tax cuts and driving domestic economic growth through initiatives to bring manufacturing back to the US.
However, the administration is expected to delay international policies, including support for Ukraine and decisions on trade tariffs, as it prioritizes domestic concerns.
Market impact:
FX: The US dollar is expected to strengthen due to loose fiscal policy combined with tight monetary measures.
Interest rates: An increase in bond yields is anticipated, with the 10-year US Treasury yield potentially exceeding 5%.
Commodities: Oil prices may initially rise due to tax cuts but could decline in the long term as the US focuses on energy independence.
2. Trump constrained
This scenario envisions Trump winning the presidency, but with a split Congress (Republicans controlling the House and Democrats the Senate). Legislative gridlock would likely limit the scope of Trump’s policy implementations, particularly in terms of tax cuts and immigration controls.
Foreign policy could see a deal with Russia over Ukraine and reduced tensions in the Middle East.
Market impact:
FX: The dollar could strengthen initially, but this is dependent on the success of Trump’s foreign policy. A weaker dollar policy could emerge if US growth falters.
Interest rates: Inflationary pressures from tariffs may push bond yields higher, despite some cushioning from additional tax revenues.
Commodities: Oil prices might face downward pressure due to easing Middle East tensions and a potential Russia-Ukraine peace deal.
3. President Harris
In this scenario, Kamala Harris wins the presidency, with Congress remaining split. The focus would shift to fiscal consolidation, with the sunsetting of Trump-era tax cuts and new taxes on corporations and the wealthy.
The Harris administration would likely maintain strong support for Ukraine and global alliances, coupled with a more restrained approach to trade.
Market impact:
FX: The dollar might weaken due to a combination of tighter fiscal policy and looser monetary measures.
Interest rates: A more muted rise in yields is expected, as tighter fiscal policies are balanced by a weaker economic outlook.
Commodities: Oil prices may initially dip due to lower growth prospects, but continued tensions in the Middle East and unresolved issues in Ukraine could drive prices higher towards the end of 2025.
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