How does President’s Trump recent Coronavirus infection affect the election and markets

02 October 2020

US President Donald Trump tweeted early this morning that he, along with his wife, First Lady Melania Trump, have tested positive for Coronavirus. The tweet, at 5.54am (BST) was just hours after it was reported that his close Government aide Hope Hicks had fallen ill from the virus. The two had been in close contact this week, as they both travelled together to the first presidential debate and a campaign rally in Minnesota on Wednesday.

Trump’s personal doctor has said that he is in good health and will “continue carrying out his duties without disruption while recovering”. Trump’s age and weight put him at risk of the virus, with experts saying that people aged 64-74 are 90 times more likely to die from the virus than somebody in their 20s. If Trump becomes seriously unwell, which is possible, then he will be unable to adequately campaign which will give Biden the edge in the upcoming election. The main focus of Joe Biden’s campaign has been Coronavirus and the presidents failing in competently dealing with the pandemic and so this will play into Bidens hands. Real Clear Politics average poll gives Biden a 7.2 percentage point lead over Trump, up slightly from the 6.8 percent lead just before the first presidential debate and commentators believe that this gap will likely increase.

Equities have fallen on the news, as markets are shunning riskier assets. Since the news came out of Donald Trump’s illness, S&P 500 futures have fallen over 1.6%, while the Dow Jones has fallen over 2.1% with no sign of letting up in the near term. The FTSE 100 and Euro Stoxx both dropped over 1% on the news but have since eradicated some of their losses and are now trading with losses worth roughly 0.8%. The news comes in a very busy period for markets as the EU and UK are currently in talks over Brexit, and the House of Representatives passed a long-awaited fiscal stimulus bill worth $2.2 trillion. The consensus is that Brexit talks will come to nothing and that the fiscal stimulus bill will be defeated in the Republican-led senate, so this is looking like an increasingly bearish time for markets.

The dollar somewhat surprisingly has been little changed this morning. The US dollar basket initially increased by just 0.1%, before falling 0.3% at a later point. The largest change in the pound relative to the dollar was due to news pertaining to Brexit, and the classic safe haven currency is currently falling against the pound. The largest shift was seen in the Japanese Yen, which initially increased by over 1% against the dollar before rebounding slightly as the day progressed.

It is not yet clear what Trump’s diagnosis means for markets and the economy. Markets are expected to fall in the short term as global risk sentiment decreases. Although on the face of it this is breaking news, it does little to change key events, such as Brexit talks, and the fiscal stimulus bill which have already been priced into the market. After the initial shock, US equities, except the Dow Jones, are all up from their daily low and have been trading relatively flat in the past couple hours. In the next couple weeks, Trump’s health will continue to be a drag on markets, but it shouldn’t be as much as the initial panic would suggest.