President Trump has tested positive for COVID-19. Is this development an unequivocal positive for Biden’s election chances? Kim Parlee speaks with Priya Misra, TD Securities, on the potential implications for the Phase 4 stimulus talks, the election and financial markets.
- Sure. So I think there's lots of questions. It was something that happened overnight. I think when we think about it as a governance question, so how ill is the president? Can he continue to perform duties, or is that going to move to the vice president? So there's a bunch of governance questions. Who else in the administration is ill? So I think these are questions that we will get answers to over the next week or so.
Then there's questions about the fiscal stimulus. I think that's what the market, for the last couple of days, has been really very sensitive to talk around this phase four deal. Again, all day today, there's been news around, is that going to move ahead? Did the diagnosis affect chances of getting a deal? In our view, no, because the two sides are still ideologically very far apart. They are far apart on the size, they are far apart on the composition of the bill. And I don't think President Trump was such an integral part of the discussions. It was really between the Senate Republicans and the House Democrats. But I think that's going to be a big question.
And then we're one month away from the election. So how does this affect the election? I think the knee-jerk reaction-- I was talking to clients overnight-- was that this is better for the Democrats. But I think this could be a game-changer. We've certainly seen with Boris Johnson, we've seen with Brazil's Bolsonaro, where there has been an improvement in the approval rating when a leader has contracted COVID. Does that happen with President Trump?
You know, I think turnout is going to be a big question for this election, so I think we've got a lot of questions. We have to track polls. We did have a pretty interesting debate earlier this week. So again, we have to look at whether the polls are after the debate impact, or is it more of a COVID impact? So there's a lot for the market to digest. But I think near-term impact is much more on this fiscal stimulus, literally in the next couple of days.
- OK, so we'll watch that, specifically. And let me just run through some of the bigger questions, because your report is excellent. You do talk about the fact that this is not an unequivocal positive for Biden, which you just outlined as to why. And you've also talked about the fact that for President Trump's demographic, I mean, it is not positive for someone who is 74 to get COVID. So let's talk about what ifs. What if President Trump becomes too ill to govern? What happens?
- If he does, the 25th Amendment has outlined that out. So it would probably move to Vice President Pence. Now the question is, who does that transfer of power? Very often, the president would himself or herself actually say that I'm too ill to govern, and therefore it moves to Vice President.
Otherwise, there's a congressional route to it, where Congress can actually force that transition to happen. It does need a supermajority, so it's not an easy thing. But there is a plan in the Constitution around something like this, if a president does become too ill to govern. So I think that's where the severity of the illness is what a lot of us are looking for any guidance on, because that's going to impact exactly to your question.
- What about, could we see an election delay?
- I think that's a really high hurdle, to get an election delay. I mean, it is possible. Congress is the only one that can actually pass. Through a supermajority, Congress can potentially delay the election. But I would argue the election's already started. There are people who are already voting by mail. So I think delaying the election-- and again, you can't delay it indefinitely. So yes, in case a couple of weeks delay will make a difference, but I think here we're talking about months of a delay. We're looking for a vaccine, et cetera. So I mean, it is possible for Congress to do it, but I think it's a pretty high bar to get that to happen.
- OK. These are some of the extreme questions I'm asking. I'll ask about the more-- you know, I say probable, we don't really know. But one option is that you're taking two weeks away of, in your words, you said of heavy campaigning from President Trump. What does that mean?
- I think that's why the market reacted assuming that this is better for Biden's chances, because President Trump does do well in terms of energizing the crowds. He's often had a boost in his approval rating when he's been out there in these events. The fact that he's not able to do these events, you almost think that it strengthens Biden's lead.
And Biden has been leading in a fairly stable seven-point or so lead over President Trump. And the fact that the election is a month away, you take at least two weeks and perhaps longer out of that process, you have less of that ability for Trump to actually turn around his chances.
But I will state that there is an intensity differential between the two. Far more people who are pro-Trump feel very strongly pro-Trump. And if they show up to vote, it could be all about turnout. So I wouldn't say that the election's over, that we can assume that Biden's winning. And I think that's why the market's struggling so much to price anything, because these are binary outcomes, very different candidates, very different policy proposals. And it's hard to price it in, because not only should you be looking at polls, you also have to have a sense of turnout. And this might energize the Trump base to show up and vote. And that can entirely change the outcome of the election.
- I've only got about a minute left, and I'm going to ask you a huge question. But what are you watching right now, as this develops? What are you going to be listening for, and what impacts do you expect to see in US dollar and markets overall?
- So near-term, I'm concerned about this fiscal stimulus. I mean, I think the election matters for policy next year, going forward. There's lots of other factors driving the economy next year. Right now, we've had the fiscal stimulus CARES Act run out in July. They haven't been able to put together a package so far. If we don't get a package over the next week, I don't think we get one until the election. And the election itself might be quite contentious. So I think just in the very near term, it's the outlook for the fiscal package.
And as we've seen in the data, the data's stalling. So I think if you don't get that fiscal package, I think we can actually see the momentum in the recovery slow down. I'm also watching COVID trends. I mean, it's the fall. It's flu season. Is that going to start to pick up, and then you get a renewed risk-off? And then again, it's going to be about polls, turnout, and I'd be watching this intensity differential between the two candidates to see if the announcement overnight around Trump's diagnosis, is that affecting polls? Because then the market starts pricing that in. So it's a lot to digest.
- You're going to be busy. Priya, always a pleasure. Thanks so much.
- Thank you.
- All right, Priya Misra, Head of Global Rate Strategy at TD Securities.