Head Research Analyst at Bovell Global Macro.

What Did We Learn from the First Debate?

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The simple answer is nothing. Neither candidate provided any new information and the costs of hedging this year’s elections in the markets remain historically high. This debate did little to ease market concerns and if anything, it highlights the uncertainty we could face in around a month’s time.


How Did the Debate Unfold?


Heading into the debate, the focus was largely on Joe Biden. We already have a good idea of what we can expect from President Trump in election debates because we got more than a taste in 2016. Yesterday, we didn’t have to wait long before ‘Twitter’ Trump turned up. We were just mere minutes into the debate before Trump interrupted Biden. By the time we got to the end of the debate, CBS News counted 73 interruptions from the President during the 90-minute event.

The two candidates clashed on pretty much all topics that were discussed, with Trump bring up the earnings of Biden’s son, whilst Biden called Trump a ‘clown’, and told him to ‘shut up’ on a couple of occasions. European traders arriving to their desks this morning will have seen ‘chaos’ wherever they looked. That was the most common word used across news services to describe last night’s debate. I would also argue that moderator, Chris Wallace, lost control of the debate by the end of the night.

How Have the Polls Changed?


Last night’s debate seems to have had little to no impact on the polls. Voters were probably stunned at what they were witnessing during the debate, and with neither party landing any telling blows against each other, the polls remain almost as they were prior to the debate.

Hours before the debate, Joe Biden released his 2019 tax returns and urged Trump to do the same. Trump’s tax returns have been a topic of discussion since 2016, and at the start of the week, reports claimed that Trump had paid just $750 in tax in 2017. However, Biden was unable to really press Trump or capitalise on this issue. 

Meanwhile, Trump’s erratic character on stage did not seem to have much of an impact on Joe Biden, which will be seen as a huge positive by his party.

If we look to the betting markets, we can see that Biden’s odds have improved marginally, but the debate has not had any significant impact. As for the question about who won the debate, there is no clear answer. If we consider the debate alone, then nobody emerged as a winner. However, if we account for the bigger picture, then I would give the win to Biden by the thinnest of margins. Trump failed to rattle Biden or make any real impact to help his standing in the polls. This means that Biden remains in the lead, and there remains a decent probability that the Democrats could take a sweeping victory in November. It is also worth pointing out, however, that Trump never won any of the debates in 2016 either and still managed to win the election so it’s certainly not over yet.

What Do the Market Think?


In recent weeks, the cost of hedging the election risk has been rising and is the highest ever premium recorded for an event. The markets are no longer paying much attention to whether it will be a win for Biden or Trump, but rather will we get a clear decision on election night. Although Biden is ahead in the polls, when we take the margin of error into account, the race is a tight one. This has led to concerns that we may not get a clear winner on the night, and the decision could end up at the Supreme Court.

Furthermore, Trump has already cast doubts about the mail-in ballot, which will be used much more widely this year because of the coronavirus pandemic. During the debate, he reiterated his stance from last week, suggesting that he may not accept the election results, in which case we would have a contested election. Once again, this scenario could take us to the Supreme Court and lead to several weeks of political uncertainty. There is also the case of whether voters will accept the results or whether we could see political unrest throughout the country. These concerns have dampened the risk mood this month, and I expect continued caution until we get the elections out of the way.

We still have another two debates between Trump and Biden, along with one debate between Mike Pence and Kamala Harris. If the Trump-Biden debates are anything like last night, then it could make the Pence-Harris debate a little more important. Since we are not learning anything substantial about policy decisions from Trump and Biden, voters might turn to Pence and Harris for some clarity.

Risk assets will likely remain under pressure throughout October and navigating through the markets will probably be tricky. If this is the case, then as I have mentioned in a previous post, the downside in equities is simply a longer-term opportunity to go long. Therefore, do not get sucked in by FOMO and keep the longer-term picture in mind.

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