We’re almost there. We’ll get to find out (soon?) whether the polls have got it right this time around. The average of national polls give Biden a 7 point lead over Trump and state-level polls have Biden winning most the battleground states (Charts 3-11). This is reflected in model and prediction market forecasts for the election outcome. FiveThirtyEight gives Biden a 90% chance of winning, The Economist gives him 95% and PredictIt gives him 63%. The numbers are not as high for the Senate, but they still show the Democrats with a more than 50% chance of winning the Senate (Chart 1).
The Battleground States Matter
But as the 2016 election showed, it’s the state-by-state count that matters. Starting with the three states that turned the 2016 election: Pennsylvania, Wisconsin and Michigan, we find Biden with stable leads of between +4 to +7 points in the polls (Charts 3,4, 6). The FiveThirtyEight and Economist models have Biden winning them with odds of 90% or higher. Prediction markets are lower at 60% to 70% odds (Chart 2). The twist is that these states may not announce results until later in the week due to how they count absentee and mail-in ballots.
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Summary
- Models and prediction markets are predicting a Democrat sweep (Biden to win, Democrats to gain Senate, and retain House)
- Biden is leading in Pennsylvania, Wisconsin and Michigan, but these states could report results late in the week
- The early reporting battleground states such as Florida, Georgia and North Carolina are showing a falling poll lead for Biden, though models still predict Biden to win.
Market implications
- Small margins of victory could see a contested election, which could see risk aversion trades work (lower equities, dollar and rates rally)
- Otherwise, a Biden win should see rates and equities sell-off, and a Trump win the reverse. The magnitudes of moves would be affected by who wins the Senate.
We’re almost there. We’ll get to find out (soon?) whether the polls have got it right this time around. The average of national polls give Biden a 7 point lead over Trump and state-level polls have Biden winning most the battleground states (Charts 3-11). This is reflected in model and prediction market forecasts for the election outcome. FiveThirtyEight gives Biden a 90% chance of winning, The Economist gives him 95% and PredictIt gives him 63%. The numbers are not as high for the Senate, but they still show the Democrats with a more than 50% chance of winning the Senate (Chart 1).
The Battleground States Matter
But as the 2016 election showed, it’s the state-by-state count that matters. Starting with the three states that turned the 2016 election: Pennsylvania, Wisconsin and Michigan, we find Biden with stable leads of between +4 to +7 points in the polls (Charts 3,4, 6). The FiveThirtyEight and Economist models have Biden winning them with odds of 90% or higher. Prediction markets are lower at 60% to 70% odds (Chart 2). The twist is that these states may not announce results until later in the week due to how they count absentee and mail-in ballots.
Watch Sunbelt States for Early Indications
The early announcing battleground states will be the sunbelt states of Florida, Arizona, North Carolina and Georgia. Biden winning these would give him a faster route to winning the Presidency – otherwise we may need to wait for the Midwest states. What is notable with these states is how close they are. Biden’s polling leads have been falling in all four (Charts 5,7,9,10). And while FiveThirtyEight and the Economist have a 65% to 70% chance of Biden winning three of the four, prediction markets have Trump winning most of these states (Chart 2).
Market impact
Waiting for Pennsylvania or Michigan may not the big issue from a process perspective, but rather wafer-thin wins in key states could open up litigation for recounts or challenges to mail-in votes. This is the worst scenario for markets that could see equities sell-off, and US rates and the dollar rally. The alternative of a non-contested election would still impact markets, but it would depend on the configuration of the win. A Democrat clean sweep would see US rates sell-off and the curve steepen with equities under pressure. While a Trump win would be more positive for equities.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)