Investing.com — Global markets will likely be focused on the US over the next eight weeks, with markets eyeing the upcoming US presidential election and the broader economic outlook, according to analysts at Barclays.
“For the rest of this year at least, as America goes, so goes the rest of the world,” the analysts said in a note to clients on Thursday.
Americans are set to elect a new president on Nov. 5, a decision the analysts said could have “far-reaching consequences” well beyond the US.
Following a closely-watched debate earlier this week, Democratic candidate Kamala Harris now holds a narrow lead over her Republican rival Donald Trump, according to a Reuters/Ipsos poll on Thursday. However, while the polls can provide a sense of nationwide views of the electorate, the vote will likely be decided by a handful of crucial of swing states.
For investors, a victory for Trump could lead to a rekindling of global trade tensions, the Barclays analysts said. The former president is proposing a 10% tariff on all US imports and a 50% to 60% levy on goods incoming from China.
“[A] blanket tariff of 10% would leave the world’s exporters no room to hide; US duties on all imports would rise five-fold, even ignoring China-specific measures. Other countries would retaliate, with uncertain but serious effects on economies and markets,” the analysts wrote.
Harris has not proposed any fresh tariff measures, although she has served as Vice President in the Biden administration, which has largely left many levies introduced during Trump’s prior term in place.
Wall Street has also been keeping tabs on the corporate tax proposals of both candidates. Trump has said he is in favor of cutting the corporate tax rate to 15% from 21%, while Harris has called for an increase to 28%.
Analysts at Goldman Sachs have said that Trump’s plan could boost the earnings of S&P 500 companies by 4%, while Harris’s plan may dent returns by 5%.
Elsewhere, markets will also be eyeing whether the US economy will experience a so-called “soft” landing, in which a bout of elevated interest rates by the Federal Reserve successfully cools inflation without causing a meltdown in the labor market or broader activity.
At the moment, traders are focused on the Federal Reserve’s monetary policy meeting on Sept. 17-18. The central bank is widely tipped to slash rates from more than two-decade highs, but it remains uncertain if officials will opt for a 25-basis point reduction or a deeper 50-basis point cut.
“A US recession at this point – with no other growth drivers in sight – would be a serious problem for the world. Fortunately, we think the US expansion is intact,” the Barclays analysts said.
“Yes, the jobs market has slowed from 2023’s pace, with the jobless rate rising 80 [basis points] from the lows. And yes, household excess savings have largely been used up. But aggregate household incomes are still rising, fueling consumption,” they added.
But with the immediate outcome of both the election and the path of the US economy uncertain, the Barclays analysts argued that many investors may choose to “sit on the sidelines for now.”
