Sticking to the presidential ballot, my expectation is that an Obama win would be a mild dollar positive. Not because it would be “good” for the US economy in any meaningful way but because it would likely spark a small flurry of risk-off as fiscal cliff fears would be amplified if Obama retakes the White House. Concerns over higher tax rates, regulation and lack of action on reforming entitlements would play into risk aversion, in my view.
A Romney victory would likely be well received by equity markets and risk assets in general. Saber-rattling toward China during the campaign could also prompt fears of some sort of bond-market retaliation from Beijing if Romney were to aggressively look to sanction China over its trade practices.
I would expect the Chinese issue to fade from the scene pretty rapidly after election day as governing and campaigning are two distinct entities, but that is not to say the market won’t be spooked for a time at the prospect of a China/US trade war.
My call for the election is that Romney will win 35 states and win by 3-4 points in the popular vote. To me, this race is a rerun of 1980 when a feckless incumbent was turned out of office amid a poor economy and a geopolitical muddle.
UPDATE: Some have raised the prospect of a President Romney replacing Ben Bernanke, which would be a dollar plus. Bernanke’s term runs through January 31, 2014. He cannot be fired (nor would he be) for merely having a different policy preference from the President.
