Who are the markets backing in the US election?

For some heavy-hitters in markets, the “worst possible outcome from the US presidential election” is a victory for Kamala Harris, said Katie Martin in the FT. The Democratic candidate’s narrowing, or even vanishing, lead in opinion polls – combined with “a big rise in wagers” on her rival in the betting markets – “has been enough to persuade a good chunk of macro hedge fund managers that Donald Trump is on his way back to the White House”.

For all that, political wonks still reckon the election is a “coin toss” and that betting markets are “unrepresentative and best ignored”. BlackRock chief Larry Fink, meanwhile, has argued that the result of the election “really doesn’t matter for markets” – a relaxed stance that it’s fair to say isn’t universal. Many believe that Trump’s policies of imposing “aggressive tariffs on imports” and launching “crackdowns on immigration” are inflationary and will have a big effect on bond markets. “For the hedgies holding this view, the Trump trade is very much on.”

Both long and short-term US bond yields have picked up markedly in the past fortnight: the yield on 10-year Treasuries has risen forcefully higher to around 4.2%. Having been surprised in 2016, “it looks as though the bond market has tried to get that election day jump over with ahead of time in 2024”, said John Authers on Bloomberg. But there are some crucial differences. The experience of Trump 1.0 has reduced the “fear of the unknown”: the basic outline of what he plans to do is unchanged. “The difference lies in the context.” Inflation had been under control for years in 2016 with interest rates “anaesthetised”; now, there’s “much less room for manoeuvre”. Nor is the “protracted” stock rally that followed Trump’s 2016 victory set to be repeated, partly because stocks are at a higher price already. “In the still extremely possible scenario that Harris wins”, it would be “great news for European stocks”, which would avoid the “numbing effects of Trump tariffs“.

The other big consideration this time, said DealBook in The New York Times, is the influence of “political prediction markets”, and whether they have “artificially inflated Trump’s odds”. One of the most popular platforms, Polymarket, admits that a single French national, with “extensive trading experience”, may have been behind some of the largest bets placed. America’s bright economic outlook should help Harris in the campaign’s closing stages, said The Economist. Growth is holding up well; prices are rising less quickly; consumer confidence is recovering; and the spending power of “ordinary Americans” is increasing. If Trump wins, it will be in spite of – not because of – the state of the US economy.