As the 2024 US Presidential election draws near, ING has outlined three potential scenarios and their respective impacts on financial markets. These scenarios examine the outcomes of different political alignments and their influence on domestic policies, foreign relations, trade, and the broader economic environment.
1. Trump Wins with Full Republican Control
In this scenario, Donald Trump secures the presidency, and Republicans gain control of both the House and Senate. The focus would shift toward expanding the 2017 tax cuts and boosting domestic economic growth, particularly through initiatives to bring manufacturing back to the US. However, international policies, including support for Ukraine and trade tariffs, might be delayed as the administration prioritizes domestic issues.
Market Impact:
- Currency (FX): The US dollar is expected to strengthen due to a combination of loose fiscal policies and tight monetary measures.
- Interest Rates: Bond yields are likely to rise, with the 10-year US Treasury yield potentially surpassing 5%.
- Commodities: Oil prices may initially increase due to tax cuts but could decline over the long term as the US emphasizes energy independence.
2. Trump Presidency with a Split Congress
This scenario envisions Trump winning the presidency but facing a split Congress, with Republicans controlling the House and Democrats the Senate. Legislative gridlock would likely limit Trump’s ability to implement sweeping policy changes, particularly regarding tax cuts and immigration controls. Foreign policy might see a deal with Russia over Ukraine and a reduction in tensions in the Middle East.
Market Impact:
- Currency (FX): The dollar could see initial strength, but this would depend on the success of Trump’s foreign policy. If US economic growth falters, a weaker dollar could emerge.
- Interest Rates: Inflationary pressures from tariffs might push bond yields higher, though additional tax revenues could provide some cushioning.
- Commodities: Oil prices may face downward pressure due to easing tensions in the Middle East and potential peace in the Russia-Ukraine conflict.
3. Kamala Harris Presidency
In this scenario, Kamala Harris wins the presidency, with a split Congress continuing. The administration would likely focus on fiscal consolidation, including the expiration of Trump-era tax cuts and the introduction of new taxes on corporations and the wealthy. Harris’s administration would probably maintain strong support for Ukraine and global alliances while taking a more measured approach to trade.
Market Impact:
- Currency (FX): The dollar may weaken due to a combination of tighter fiscal policy and looser monetary measures.
- Interest Rates: A more subdued increase in yields is expected, as tighter fiscal policies are offset by a weaker economic outlook.
Commodities: Oil prices might initially dip due to lower growth prospects, but ongoing tensions in the Middle East and unresolved issues in Ukraine could drive prices higher towards the end of 2025.
