Economic Weekly: And now for something completely different…

After four tumultuous years, a litany of eye-grabbing headlines and a countless number of tweets, the Trump era may now be nearing an end. After days of counting, most news agencies had seen enough in the key state of Pennsylvania and called the race for Joe Biden. As at the time of writing, Biden was building on his leads in both Pennsylvania and Georgia, and looked set to grab about 303 electoral college votes and win the nationwide popular vote by 4-6 million votes according to projections. That’s a fair way short of what polls suggested, but we pointed out last week that Biden’s lead was probably large and stable enough to withstand a substantial error and that’s proved correct.

Democrats also held onto the House of Representatives but look like they’ll be unable to overcome their geographic disadvantage in the Senate. For now, markets are taking that outcome in their stride, and the result saw a broad rally in equities after some pre-election anxieties (see chart below). Whilst the prospects for a big stimulus package are uncertain, markets are comforted by the fact that divided control will make big tax and regulatory changes unlikely. With a very different President in the White House, markets are probably hoping for a little more predictability too. Still, it’s not quite over just yet. As at the time of writing, President Trump is determined not to accept defeat and is challenging the result by whatever means he can. And remember, if all else fails, there’s always 2024…

This week, the domestic focus turns away from electoral politics and over to the very different world of monetary policy, with the RBNZ meeting on Wednesday. We expect the bank to leave its OCR, LSAP and forward guidance unchanged, but unveil further detail about its ‘Funding for Lending Programme’ or FLP, that will offer low-cost funding for banks. The bank is also likely to downplay the signs of life we’ve seen domestically, and highlight the headwinds facing global growth as COVID cases rise overseas. We still expect a negative OCR next year, but a lot will depend on the effectiveness of the FLP in delivering support, as well as the shape of the pandemic and its continuing economic impact. You can read our full preview here, and don’t forget to stay tuned for our review.