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What do President-Elect Biden's choices mean for markets?

27 November 2020

Jonathan Marriott, Chief Investment Officer

While Trump may never formally concede the election, he has allowed access to funding and briefings for President-Elect Joe Biden's team. Biden's nominations for key posts emphasise his priorities and how he expects to achieve them. For investors, it points the way on policies that may shift markets over time.

Biden's nomination for Treasury Secretary is former chair of the Federal Reserve (Fed), Janet Yellen. It would be hard to find a candidate with better economic credentials; a long term academic who served on President Clinton's economic advisory council, an eminent economist who knows the monetary system inside and out. Her appointment will need to be confirmed by the Senate.  During the Senate hearings for her appointment as Fed Chair, Republicans were concerned that she would focus on unemployment rather than control inflation. The move by the Fed to target average inflation, thus tolerating a period of higher inflation, and the revised target for employment has already shifted the emphasis. She also called for corporate bond buying ahead of the move to do so by the Fed. She will no doubt want to give the Fed as many tools as possible to deal with the recession being caused by the pandemic, and may reverse the recent moves by Steve Mnuchin to curtail the Fed's tool box. As Treasury Secretary, she will have to negotiate with Congress over spending plans. With the Republicans retaining a majority in the Senate (subject to the Georgia run-offs in January), she may find this a tough task. She has less experience of the bargaining skills needed to get deals done in Washington, but Joe Biden has decades of experience in this area, and knows Republican Senate leader Mitch McConnell very well. Overall, we can expect support for full employment, particularly in minority communities, and for continued low interest rates to continue.

The Nomination for Secretary of State and UN Ambassador are Tony Blinken and Linda Thomas-Greenfield respectively, both of whom are very experienced in diplomatic affairs. Tony Blinken served as Deputy Secretary of State during the Obama Presidency and has worked with Joe Biden for many years. He speaks French and is a Francophile, having spent part of his time growing up in Paris. His father and uncle served as US ambassadors and his stepfather acted as an adviser to French presidents and John F Kennedy.  A truly international and out-looking background. Linda Thomas-Greenfield is a career diplomat having had postings in Nigeria, Switzerland, Pakistan, Kenya, The Gambia and Jamaica. She was a top diplomat at the Bureau of African Affairs. During the Trump administration, she was pushed out of the State Department by the then Secretary of State, Rex Tillerson. These nominations also require confirmation by the Senate, but it will be hard to argue that both Blinken and Thomas-Greenfield are unqualified for the positions. With these two at the top of the foreign policy tree, we can expect the US to return in force to the international community and to take a multilateral approach. They will want to work with the European Union, particularly when dealing with China. A less confrontational and more diplomatic approach is likely. In the Middle East, they will want to revisit the Iran nuclear deal, but things have moved on in the last four years with Iran not complying with the limits set in the original agreement. A more measured approach to diplomacy should be welcomed by markets that dislike uncertainty.

The Appointment of former presidential candidate John Kerry as Special Envoy for Climate indicates Joe Biden's stance on environmental concerns. Biden has already pledged a return to the Paris accord on climate change, further details on the expectations for Biden's environmental policy is discussed in 'What does a Biden presidency mean for the 'green revolution'?' in this week's Brief. For markets, infrastructure build will be generally welcomed for the economic boost and employment that it may bring. A move away from fossil fuels will be less welcome by the oil sector in the long run. Joe Biden did commit during the campaign to allow fracking to continue, which may keep the oil price from rising too fast. Oil companies have risen on the back of the vaccine news and the prospect for an economic recovery, but the longer term out-look is more nuanced. Climate change is the biggest long-term challenge for the world and we should welcome a President that takes it seriously.

Overall we welcome a more international and multilateral approach.  Listening to the nominees speak earlier this week, they stressed that they were prepared to tell the story as it is, however uncomfortable that may be. They are an extraordinarily experienced team of individuals and well qualified to advise the future President. Most of the nominees have worked with Joe Biden for many years and know him well, and Biden, for his part appears to be willing to listen to them. A level of understanding and cooperation that has appeared to be missing at times during the Trump Presidency.  

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