As speculation continues to mount about whether Joe Biden will drop out of the US presidential race, we are seeing the markets start to position for a potential win for Donald Trump later this year. Movement in the markets offers a preview of what may lie ahead in the event that Trump returns to the White House.
Following Biden’s disastrous performance in his recent televised debate with Trump, concerns have mounted about age-related frailty and cognitive decline, and the odds on him winning the presidential election have dramatically shortened. Betting markets suggest that the odds of a Biden win are at 8/1.
The bookies offer 7/4 odds on Biden being the Democrats’ presidential candidate, an implied probability of 36% versus 11/8 for his vice president, Kamala Harris, a 42% probability. Trump is a near dead-cert for the Republican nomination, at 1/100 or a 99% probability.
The odds on Trump winning the presidential race are 8/13, implying a 62% probability he will win. You can get better odds on Harris winning than Biden at 5/1. Recent polling data bears out the betting trends, with a poll from The New York Times and Siena College showing Trump building a sizeable lead over Biden.
A report in Bloomberg suggests that it’s not only gamblers who are placing their bets. Many traders were re-examining their portfolios ahead of the July 4 holiday in the US, positioning for a potential Biden withdrawal from the race and growing momentum behind Trump’s bid to be re-elected as US president.
If Trump manages to return as US president, he is expected to favour lower taxes, looser fiscal policy, lower regulation and greater protectionism. As such, his presidency is expected to help drive a stronger dollar, higher US bond yields and gains in bank, health and energy stocks.
Among the implications of a Trump presidency are higher inflation, a larger budget deficit and the potential of greater geopolitical instability, which could favour the dollar as a safe haven currency as well as derail interest rate cuts. His proposals to cut corporate taxes and introduce steep import tariffs are expected to be highly inflationary.
At this late stage, it appears that it will be difficult for the Democrats to turn their fortunes around, even if Biden drops out. Harris is perceived to be an unpopular candidate, yet for practical reasons, it will be difficult for the Democrats to field another alternative. Harris is the only candidate who can access the sizable war chest Biden has raised to fund her campaign.
There are still four months to go before the US presidential election. As Trump’s victory over Hilary Clinton in 2016 shows, the pollsters and betting markets can call it wrong and the unexpected can still happen. Nonetheless, it seems wise for investors to start bracing for a Trump presidency – and the volatility and uncertainty it might create for the next few years.
With the increased possibility of a Trump presidency, we believe there is space for both actively managed quality funds as well as index tracker components when re-assessing the positioning of our offshore equity portfolios. The former are defensively positioned where the underlying companies’ earnings should be relatively resilient irrespective of the election result, whereas the broad tracker instruments have exposure to sectors such as banks and energy – potential winning sectors under a Trump presidency as mentioned above – that are deliberately avoided by our active managers due to their leverage and cyclicality, respectively.
From a currency perspective, a stronger dollar would translate to weaker emerging market currencies such as the rand, a factor that is supportive of us not being a proponent of the “value play” offered by the JSE at present.
“A Trump victory raises the prospect of higher inflation and a stronger dollar, given his promise of more tariffs, and a tougher stance on immigration.”
– JPMorgan Chase strategist Joyce Chang
Global News
- The Washington debate over whether Biden will scrap his run for re-election is spilling into Wall Street, where traders are shifting money to and from the dollar, Treasuries, and other assets that would be adversely impacted by Trump’s return to office. The recalibration of portfolios kicked off at the end of last week after Biden’s disastrous debate with Trump heightened concerns the 81-year-old Democrat is too old to serve another term.
- On the other hand, the Democratic National Committee is looking at formally nominating Biden as early as 12 July to ensure that the president is on November ballots while helping to stamp out intra-party chatter of replacing him after last week’s poor debate performance, according to sources. US vice-president Kamala Harris is the top alternative to replace Biden if he decides not to continue his re-election campaign.
- A US Supreme Court’s ruling handed down on Monday means that Trump has some immunity from criminal charges over his efforts to overturn the 2020 election results. This has dealt a near-fatal blow to the push by prosecutors to go to trial before the November election. In a majority ruling, the justices ruled for the first time that former presidents are shielded from prosecution for some official acts taken while in office.
- Fed chairman Jerome Powell said the latest economic data suggest inflation is getting back on a downward path, but emphasised officials need more evidence before lowering interest rates. Powell has not given timing on when the first rate cut may happen but said the central bank has made “quite a bit of progress” in reducing inflation, which he would like to see continue.
- UK’s Britain’s Labour Party won a landslide election victory yesterday having passed the 326-seat milestone, sweeping the Conservative Party out of power after 14 years, in an anti-incumbent revolt that heralded a new era in British politics. Keir Starmer becomes Britain’s next prime minister and has promised a “national revival”. The party’s manifesto has confirmed plans to raise taxes on private equity fund managers. This would raise £565 million ($722 million) annually that would be spent on adding mental-health staff in the National Health Service, legal aid for disaster victims and the waiving of visa costs for non-UK veterans who served in the British military.
- Marine Le Pen’s National Rally is trying to outmanoeuvre rivals that are pulling out well-worn tricks to keep the far-right out of power in the final round of legislative elections on Sunday. Le Pen’s opposition, President Emmanuel Macron’s centrist group, and a left-wing alliance are racing to coalesce and pull out candidates to shut her own people out. Le Pen, by turn, is trying to court supporters to back her. One scenario would see Le Pen win an outright majority, while the other would be a hung parliament. However, polling shows she won’t win the outright majority vote.
- Steve Ballmer passed Bill Gates on Monday to become the sixth-richest person in the world, the first time the former CEO of Microsoft has been wealthier than the company’s co-founder. This is as Microsoft shares rose to a fresh record, bringing their total gain this year to 21% on an AI stock rally. More than 90% of Ballmer’s $157.2 billion net worth is in Microsoft shares, according to the Bloomberg Billionaires Index. Gates has diversified his $156.7 billion fortune.
- Amazon founder Jeff Bezos disclosed a plan to unload 25 million additional shares of Amazon.com worth $5 billion on the day the stock hit a fresh record. Bezos sold shares worth about $8.5 billion over nine trading days in February – the first time he disposed of company stock since 2021. The additional sales would bring his total this year to roughly $13.5 billion, according to calculations by the Bloomberg Billionaires Index.
- Nvidia CEO Jensen Huang sold shares worth nearly $169 million in June, the most he’s netted in a single month as insatiable demand for the chips used to power AI drove the stock to fresh peaks. The sale of 1.3 million shares, his first of the year, came during a month when Nvidia’s market value rose above $3 trillion for the first time. That briefly made it the world’s most valuable company and pushed Huang, 61, into the rarefied group of ultra-rich with fortunes above $100 billion.
- Consumer brands are scrambling to adapt as the use of popular weight loss and diabetes drugs like Wegovy and Ozempic skyrockets. Yet, health professionals are warning consumers not to take medical advice from the same companies trying to sell them food, supplements and other consumables. GNC, the struggling vitamin and dietary supplement chain, is adding a dedicated section in its 2,300 US stores for people on the medications. Daily Harvest, a meal kit service, has a food collection offering for those on the drugs. This trend of food brands seeking to cash in on the demand for the meds is causing concern among health professionals.
- As at Thursday’s close the S&P 500 was 1.40% up for the week.
Local News
- The country’s newly formed Government of National Unity was officially sworn into office on Wednesday. The first biannual planning meeting is set for next Thursday and will take place over two days. It is set to determine the direction of the new government. The key question is whether Cabinet is fit for purpose and, especially, whether the business-friendly DA can shift South Africa’s growth dial with just the six ministries it has been granted.
- Political analysts believe South Africans will need to be patient with the Government of National Unity as the ministers, their deputies and the bureaucracies find their footing and create a common organisational culture. The ANC has just more than 60% of the cabinet positions and about 76% of deputy ministerial positions – this against winning just 40% of the votes in the election. Cabinet has grown to 32 members (from 30) and there are now 43 deputy ministers (from 36). By global standards, this is a large government. Each minister has a staff of about 10, while deputies have a slightly smaller staff.
- There is a strong push by opposition parties for the establishment of a dedicated portfolio committee in parliament to oversee the presidency to ensure accountability. This has been a long-standing demand by opposition parties. The National Assembly’s rules committee, chaired by speaker Thoko Didiza, decided at a meeting on Tuesday to refer the matter to a subcommittee.
- Writing for BusinessLIVE, Arena editor-in-chief, Peter Bruce hopes the creation of a new government on Wednesday marks the end of the madness of industrial policy in democratic South Africa. He points out that the former trade, industry and competition minister Ebrahim Patel made several missteps, including putting tariffs on items that make no sense, such as solar panels, which are meant to boost a local industry that Bruce says is non-existent. This has been the case for almost all the industries Patel tried to target as champions of job growth, he says. A BusinessLIVE editorial takes a similar stance, saying that the new minister, Parks Tau, has the chance to turn the department around.
- Gauteng premier Panyaza Lesufi’s ANC took control of seven key portfolios when he announced his 10-member provincial cabinet that excluded the DA on Wednesday night. The move has been called a death knell for service delivery in the province.
- The Bank of America says South Africa’s economy could grow by about 2% in the medium term if Eskom maintains the momentum and keeps the lights on for the rest of the year. It also said it expects government finances to improve due to a better GDP outlook after strides in ridding the country of load-shedding.
- After numerous attempts to implement fixed charges to cover the cost of distributing electricity to prepaid customers, the City of Johannesburg’s City Power has begun charging customers a R230 surcharge. The service charges mean that prepaid users will effectively see a 45% to 65% tariff hike when factored into the overall tariff increase.
- Naspers has now bought back a fifth of its shares since launching the largest share repurchase programme in the JSE’s history, together with international unit Prosus. On Thursday, the technology investment group said it had cumulatively repurchased 13 million Naspers shares as part of the buyback programme, representing 3.004% of Naspers N shares in issue, between 25 August 2023 and 3 July 2024.
- Bidvest is disinvesting from the financial services industry, turning its focus to its core, and more profitable, businesses as consolidation in second-tier banks ramps up. Internal discussions determined that the group was not prepared to invest more capital to grow the lender and it would either be closed or sold.
- Shoprite Group has introduced an innovative digital solution for its Cash & Carry stores, marking the wholesale brand’s first venture into e-commerce. Bulk-buying customers can now browse and purchase a wide range of goods at highly competitive prices through a fully automated online shopping system, with free delivery within a 50km radius. This comes as Amazon launched in South Africa in May, bringing stiff competition in the fast-growing e-commerce retail sector.
- As at the time of writing the rand was 0.30% weaker and the ALSI was 1.75% up for the week.
Sources: Dynasty, BusinessLIVE, Moneyweb, Business Report, CNN, Bloomberg, Daily Maverick, New York Times, Reuters, etc.
