Stock exchange and dollar: who wins and loses with Joe Biden’s victory, according to market – 07/11/2020

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Democratic party candidate Joe Biden’s victory in the election for president of the United States is positive for the stock exchanges around the world, including in Brazil, say market professionals. In the exchange rate, the expectation prevails that the dollar will return part of the accumulated appreciation over 2020 against most of the main global currencies, except in Brazil, where domestic problems, such as public debt, should keep the real under pressure.

According to experts, Biden’s victory represents less uncertainty on the economy’s radar, which helps to reduce the risk aversion of investors. This stimulates the search for higher return products, such as stocks, and reduces the demand for assets considered to be value reserves, such as gold and dollars.

“The American elections have been a source of stress for some time now. With a definition, investors can begin to outline scenarios because they know at least the policy line of who will command the largest economy in the world in the coming years,” says the Chief Economist of the Frente Corretora de Câmbio, Fabrizio Velloni.

Why Biden’s victory favors scholarships?

The definition of Biden as the new president of the United States is considered a positive factor for investments in shares for some reasons, according to market professionals. See some.

  • Stimulus package: With the definition of the new president, Democrats and Republicans must finally reach an agreement for the approval of the stimulus package of the American government to face the economic losses caused by the pandemic. The injection of resources, which could be in the order of US $ 1 trillion, will help the largest economy on the planet to gain strength and to pull the rest of the world economic activity.
  • Global trade: Biden should resume the trade agreement agenda, assuming a less conflicting stance with American historical partners, say market professionals. This policy is seen as positive by the markets because it can stimulate global trade and, consequently, the world economy.
  • Balance of forces: Joe Biden’s victory in commanding the executive branch in the United States may not occur in the same way in the legislative branch, since the Republican party may still retain the majority in the Senate. This eventual balance of forces is considered a positive factor for the markets because issues that are more sensitive to entrepreneurs can be stopped.

“This balance between the two parties, Democratic and Republican, eliminates risks especially of raising taxes too much, which is seen as positive by the market, and the American Stock Exchanges are already reflecting this optimism with positive performance as well. As usual, performance of the American market echoes in the Brazilian market and we should see stocks in Brazil doing well as well.
Jorge Junqueira, partner and head of variable income at Gauss Capital

What is the impact on the exchange rate?

The definition of who will lead the United States already removes a source of uncertainty from the horizon, say market professionals. By itself, this factor can already reduce the demand for the dollar as an application and, by table, lead to a devaluation of the American currency against most other currencies in the world.

In addition, Biden advocates more government spending on social policies, such as health care, as well as raising taxes, to cover extra expenses, measures that may discourage the pursuit of the dollar.

“The market works with the dollar, losing some of the value it has accumulated this year in relation to the global basket of currencies” says the responsible for fixed income and multimarkets of BNP Paribas Asset Management, Gilberto Kfouri.

Can the dollar fall against the real?

In Brazil, on the other hand, the dollar may remain strong because doubts prevail regarding internal problems. The biggest concern of investors is with the size and pace of growth of public debt.

According to market professionals, the fear that the Bolsonaro government will have to raise interest rates in order to continue rolling the growing indebtedness reduces the inflow of foreign investments into the Brazilian economy, limiting the supply of dollars here in the country.

Therefore, the space for a greater devaluation of the American currency against the real is an uncertainty among asset managers, even after the dollar has already accumulated more than 40% appreciation this year.

Brazil has specific problems, such as fiscal, political, and very low interest rates. All of this creates a more depreciated real environment.
Ronaldo Magalhães, managing partner of Modalmais

Worst case scenario is blurring

All market professionals heard by the Twitter warned that there is still a source of uncertainty related to the American elections: the risk that the dispute will stop in the courts. Volatility in the stock market and the foreign exchange market may gain strength if Donald Trump does not accept defeat and resort to measures such as requests for a recount of votes or even questions in the Supreme Court.

An uncertain scenario, after a very tight result, tends to cause volatility, especially considering that this is a dispute between two very polarized sides.
Matheus Janoneli, analyst at Nova Futura Investimentos

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