Election Scenario #3: Status Quo

This outcome would be a moderate surprise and another big loss for pollsters. It would be better for equity markets than a Biden with a Republican Senate as the incoming Senate would be much more likely to work with Trump on a new stimulus proposal than Biden. There's also a better chance of a deal in the lame duck Senate. Trump's use executive powers would be more favorable for stocks, barring another trade war. Some might argue this is the most favorable outcome for equities, if only because the same state-of-play markets have dealt with for the past two years.

At the same point, it's not priced in and much of the reaction would stem from how we get there. If it's similar to four years ago in that it's a clean win, then the reaction will be more favorable. If it's close and contested then risks rise. Beyond that, Trump will always remain a wild card and what he does next is always impossible to predict, but he measures himself against the equity market and that has proven to be a positive.

In terms of the US dollar, this is the middle ground. It's not as negative as a blue wave, and not as positive as a Biden win with a Republican Senate. Beyond that, we will have to wait for guidance from policymakers in the House, Senate and Trump.

A tail risk scenario is a repeat of 2016 where Republicans win the House as well. That would be market-positive and dollar negative as it would mean more tax cuts and deregulation. In the longer term, its legacy would be of Trump's formula for success continuing to spread globally. That's negative for globalization; and in any Trump-winning scenario Chinese assets would be a loser.

In all our scenarios it's tough – if not impossible – to envision a less-hostile US political playing field. For better or worse, aggressive partisanship is here to stay.