The weekly US election countdown: 9 weeks to go The weekly US election countdown: 9 weeks to go The weekly US election countdown: 9 weeks to go

The weekly US election countdown: 9 weeks to go

US Election 2024
John J. Hardy

Chief Macro Strategist

Summary:  Polls and betting odds are shifting back slightly in Trump’s favour. This week, we focus on what the US bond market is telling us about the US economy, as inflation and the economy are top issues for voters.


This week: The status of the economy in focus through Friday job numbers

Polls have tightened a bit again, and thus back in Trump’s favour as we can see from the shift in the polling and betting odds. Stock markets saw a continued recovery in sentiment after the brief wipeout in early August. Indeed, ahead of this week’s Labor Day holiday on Monday in the US, the US S&P 500 Index posted a record high weekly closing level. Financials, industrials and materials posted the strongest week last week, while info-tech was weighed down a bit by Nvidia’s somewhat disappointing outlook, at least relative to stratospheric expectations. 

The earnings calendar is quiet this week outside of the chip and software giant Broadcom, which reports on Thursday. There is a strong AI angle to that company’s potential outlook, so it bears watching for the general status of the AI theme. 
With polls in closer balance, it is impossible to associate moves in specific assets with the anticipated election outcome, but the underlying direction of the economy is critical to track as we head toward November 5, as we discuss in the Chart of the Week below. A weak economy is historically associated with voters rejecting the party in power.

Chart of the week: What is the US bond market telling us?

Source: Bloomberg
Chart: Does the US yield curve suggest we are headed toward a recession? The US bond market, and specifically the US yield curve, suggests that the economy is headed toward a slow-down and possibly even a recession, though on an unknown time scale. 

The US yield curve is determined by the difference between the ten- and two-year US treasury yields (calculated as the ten-year less the two-year yield – shown with the dark blue line in the chart above). In recent decades, the longer ten-year yield has spent most of the time at higher levels than the shorter 2-year yield (the shaded green areas). This is considered normal as holders of bonds want more compensation, or yield, for holding a bond that expires farther into the future. When the longer-term rate slips below the short-term rate, the yield curve is said to be “inverted” (shaded dark red). The other line is the Federal Reserve’s policy rate, with the dotted line indicating that the market is predicting that the Fed will cut the rate from its current level of 5.25-5.50% to 3.00-3.25% by late next year.

Yield curve inversions happened when the central bank, in this case the Federal Reserve, has hiked interest rates to levels that are intended to slow the economy. Market participants are happier to buy the longer-term treasuries at lower yields than shorter-term treasuries in the belief that interest rates are far too high to maintain at current levels and the Federal Reserve will eventually cut rates once the economy slows. 

As indicated with the dotted line, the market is indeed predicting those interest rate cuts are coming, starting with the September 18 FOMC meeting. While markets may initially think the prospects of lower interest rates to support the economy are a great thing, history shows that the Fed is usually “behind the curve” in adjusting policy and that its rate-cutting is only a delayed reaction to a rapidly slowing economy. The yield curve begins to “steepen” as the market predicts more and more cuts as the Fed tries to catch up. This takes the shorter-term yields like the 2-year well back below the 10-year, like in the cycles starting in 2001 and in 2007 you can see on the chart. 

The key question here as we march towards Election Day is whether this yield curve steepening is benign and suggests a rapidly weakening economy that will require many Fed cuts, or if it is simply a “soft-landing” scenario for now in which the Fed can cut back its policy rate a bit now that inflation levels have fallen well below its 5.25-5.50% policy rate. One thing is for sure: this cycle of yield curve inversion was very dramatic as the pandemic-linked spending blasted inflation to its highest levels in modern memory.

Key point on the US Election this week: 

1. The polls are mean reverting after the Harris surge
The Labor Day Holiday this Monday the 2nd of September traditionally marks the end of the US summer and the return to school and work from the summer holidays. After the quick emergence of VP Harris as the Democratic nominee after President Biden stepped aside on July 21, her polling averages surged nearly every week through the convention the week before last. That convention failed to provide her with any additional bounce and now the polls seem to be mean reverting back to closer balance. Trump has taken a stronger lead in betting markets and some battleground- or “swing states” polls suggest the race is extremely tight – for example one in Michigan showing Trump with a 1% lead, if with a 4% polling margin of error. (Biden won Michigan by nearly 3% in 2020.) The campaigns will go full tilt from here until Election Day on the 5th of November. 

Looking ahead: US Jobs report and the first presidential debate

Harris finally sat for an interview with a friendly CNN reporter last week. The interview was rated a “pass” by observers, though many criticised her for the lack of specifics on policy. It’s still a long wait until next Tuesday’s September 10 debate between Harris and Trump, and both sides are bickering about the terms of the debate and whether both microphones will be on or off while the person with the floor is speaking. That debate is likely the next best chance to jolt public opinion and the polls, giving us a possible test of whether market expectations are shifting as well.

Stay tuned this week for the US August labor report this Friday the 6th– especially the unemployment rate, which was at 4.3% in July and expected to have dropped to 4.2% in August. The Fed has recently highlighted its concern about the labor market and a weak report (higher unemployment rate) could move expectations towards a larger 0.50% interest rate cut.

See you next week!


About the author: John is Saxo’s Chief Macro Strategist, with over twenty-five years’ experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history since being allowed to stay up late as a young kid to watch the 1980 election results roll in and Ronald Reagan winning the presidency over Jimmy Carter.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.