First US Presidential Debate: How Markets reacted to the chaos

01 October 2020

The first presidential debate earmarked the end of campaigning for Joe Biden and President Donald Trump. Leading polls suggest that Biden has the edge on Trump by as much as 6 percentage points ahead of the 3rd November election, and Biden has consistently beaten Trump in every national poll since they began at the start of January.

The debate was considered a mess by most with no clear winner and one clear loser: American political discourse. President Trump had a clear tactic, to go on the offensive, repeatedly interrupting Biden and it didn’t take long for Joe Biden to call Trump a “clown”, “the worst President America’s ever had” and also told him to shut up. Both candidates were hoping not to offer up any ‘viral moments’ which could be used against them in upcoming debates, and they mostly succeeded although President Trump did notably sidestep Moderator Wallace’s invitation to condemn White Supremacists. Trump told the Proud Boys, a men only far-right group, to “stand back and stand by” before going into a tirade about Antifa, trying to turn the focus onto Biden.

The debate started with the issue of the Supreme Court nomination, where Biden tried to appeal to the American people by saying that Trump’s choice, Amy Coney Barrett, will attempt to disband the Affordable Care Act. Trump said that it is right as president with the US senate behind him to nominate anyone he sees fit. The next segment was focused on COVID-19 and the US response, and Trump was put further on the back foot when Biden told the audience that the President knew of the crisis in February and did nothing to introduce precautions in the event of a global pandemic. Trump responded by blaming China and saying that the US is only “weeks away” from a vaccine. President Trump found refuge in the next segment on the economy, where polls suggest that the American people trust Trump over Biden on economic policy, but Biden managed to steer the question to tax returns where it recently came out that Trump paid only $750 in taxes in 2016 and 2017. When asked about 2016 and 2017, Trump said he paid “millions of dollars” in taxes.

The debate then took an ugly turn when Trump launched an attack on Biden’s sons: Hunter and Beau. At this point, the candidates were repeatedly yelling at each other as Wallace tried to maintain order. The debate continued in this vein when race relations was brought up by Wallace. Both candidates have a poor record on race and this segment turned into a mudslinging fight, where Trump brought up Biden’s ultra-aggressive crime bill which he authored in 1994, and Biden brought up Trumps record as president where race relations has deteriorated drastically. Trump went on to emphasise his law and order stance. The last segment focused on the integrity of the election, and Biden was unequivocal in saying “If I win, that will be accepted. If I lose that will be accepted.”, while Trump double down on his assertion that mail-in ballots will lead to fraud, although there is no substantiated evidence behind the claim. Wallace then ends the debate, even as President Trump tries to speak over him, which was a fitting end to a very chaotic debate.

In the immediate aftermath, US equities dropped, and European shares fluctuated as investors reacted to a bitter debate which increased the risk of a contested vote on November 3rd and opened the door to a potentially volatile transfer of power. S&P futures fell as much as 1.3% in the hours after and Dow Jones dropped nearly 1%. The US dollar has held relatively steady as investors are weighing up the downside of falling national sentiment to the upside of using the greenback as a safe haven currency. The yield on the 10-year US treasury bond climbed one basis point to 0.65% during the debate.

The first debate has come as equity and currency markets have entered a tumultuous period. Uncertainty around the election as well as rising coronavirus cases around the world have contributed to a fall in the stock market in September. The S&P 500 and Dow Jones was down as much as 4.4% and 4.1% in the nine day period between 16th/25th September as the global appetite for risk decreased. However, there has been a small uptick in equities since Friday 25th, as investors are slowly coming back into equities. The story is similar for EU and UK stocks, although the selloff was more severe as the FTSE 100 lost more than 2.5% of its value on Monday 21st.

The dollar has benefitted greatly from being the premium safe haven currency during this volatile period and has increased its value over most major currencies including the Japanese Yen and the Swiss Franc. As investors piled into equities, the demand for dollar as a safe haven currency fell and both the euro and pound have increased its value relative to the dollar since Monday. Brexit negotiations continue this week and if they are successful it is likely that the value of the pound and euro will continue to rise, as election uncertainty will weigh heavily on the dollar.

The next US Presidential debate will take place on Thursday 15th October, just over 2 weeks away from election day. Trump, behind in the polls, will hope that Joe Biden will have one of his ‘gaffes’ while Biden will look to get out of the next debate unscathed without too much undignified chaos. Markets, on the other hand, will hope that a much more dignified and cleaner debate takes place and that both candidates come off presidential.