US President Donald Trump holds a face mask as he speaks during the first presidential debate at the Case Western Reserve University and Cleveland Clinic in Cleveland, Ohio.
“October surprise” is the term in U.S. political circles for a late swerve that could change an election, a reference to the original conspiracy, the unproven allegation the Reagan campaign arranged with the Iranian government to delay the release of American hostages. The question market analysts were trying to answer on Friday was whether the news President Donald Trump has contracted COVID-19 is that surprise, and moreover, in what way will it change markets.
The easiest answer is, who knows?
“Markets (being impersonal) will focus on whether this affects the election outcome or public health policy. The future presidential debates may not happen; these were not seen as especially significant. Those opposed to mask-wearing may revise their views, and the president’s experience may impact U.S. public health policy,” said Paul Donovan, chief economist at UBS global wealth management.
The action in other assets, like currencies DXY, +0.05% and gold GCZ20, -0.18%, also was restrained. There also, as ever, was other news to contend with, such as the fact U.K. Prime Minister Boris Johnson was set to meet European Commission President Ursula von der Leyen on Saturday — news that could signal progress on avoiding a hard exit from the European Union.
Trump already was trailing in election polls, as well as betting markets, after a debate many labeled “chaotic.”
Analysts put forth different possibilities on how the news will be received.
“How Trump recovers from COVID-19 could be a game changer for the election,” said Rony Nehme, chief market analyst at Squared Financial. “If he recovers quickly, he was right about the virus, which will be a big boost for his campaign. If he becomes very ill, even with the sympathy vote, it will show his approach to the pandemic was misjudged.”
Marshall Gittler, head of investment research at BDSwiss Group, argued the opposite. “Even if he’s healthy enough to continue, what message does this give to his supporters, who believed him when he consistently downplayed the severity of the virus, said it was going to ‘disappear,’ and said his administration’s response to it was ‘perfect’? Moreover, Trump’s whole persona is based on an aura of ‘winning.’ If he’s seen to be a victim, that might cause people to doubt the advice he’s been giving about the virus up to now. Disillusioned with their leader, they’re much more likely to vote Democrat.”
Sebastien Galy, senior macro strategist at Nordea Asset Management, argued the Trump administration may take more radical steps faced with their difficult predicament. “Faced with this, the administration is likely to take a strong step early, likely against China. Hence, this shock should create a series of after shocks and volatility is unsurprisingly expensive,” said Galy.