What Biden means for your money  

The inauguration yesterday of Joe Biden as 46^th US president is, overall, good news for European investors.

The most basic element of progress is unquestionably that the turmoil of the Trump era is over. The erratic announcements, sometimes one contradicting the other within hours that came out of the Trump White House, which sent markets and currencies spiralling and crashing, will cease.

One may or may not agree with Biden policies – and we have issues with a number of them – but they will at least be part of a coherent programme. Further, Biden is Europe-friendly, overall, so relations with the US should normalise.

Biden, Yellen will not talk up the dollar

But there are more specific benefits.

The Biden administration is expected to take a more hands-off approach to the value of the US dollar than Trump did. Trump railed about keeping the dollar strong, regardless of whether that made any sense for policy.

Biden’s administration has other priorities.

“The value of the U.S. dollar and other currencies should be determined by markets,” said Treasury Secretary nominee Janet Yellen at her Senate confirmation hearing on Tuesday. “Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy.”

Certainly, this leaves the ECB with the challenge of a strong euro. But, with billions of euros being spent in support of businesses and households, do we want to weaken the buying power of the euro?  ECB President Christine Lagarde will make statements to that effect, but the central bank isn’t really doing anything to make eur/usd or eur/gbp dip down.

Biden is better for stocks and crypto

World stock markets rallied, of course, on the Biden victory. The $1.9 billion stimulus plan is expected to drive recovery in the US, and that means increased corporate earnings.

Biden will be more hawkish on regulation – he has on his first day in office cancelled the Canadian Keystone XL oil pipeline project – but not on financial regulation. His appointment to the Securities and Exchange Commission Gary Gensler is expected to prove more liberal and open with regard to the companies under his supervision. Gensler is also expected to be much more open to cryptocurrencies and their integration in the futures and other derivatives markets.

Bond investors, on the other hand, will be less enthusiastic about Biden administration policies.

Bond investors are focused partly on the flood of new bond issuance necessary to finance that big stimulus injection. And they are also concerned about the longer-term implications for inflation, which is why the yields on debt securities with shorter durations – two-year and five-year bonds – have barely moved even as the 10-year and 30-year bond rates have spiked and sharply steepened the US yield curve.

The US 10-year bond rate has been creeping up since August, when it was around 0.50 per cent. Ahead of the November election it traded around 0.77 per cent, spiked to 0.98 per cent and then fell back to around 0.84 per cent.

But what happens when we take a step back and look at the world as a whole with Biden at the helm in the US?

Everything Biden has said has been ‘plain vanilla,’ when it comes to the economy. Like most Democrats, he is vaguely in favour of social welfare, but not so much to get his middle class supporters angry. The Dems have been good for business since the time of Clinton, and we can only hope, faced with the great uncertainties of the pandemic, that he will chart a sane and reasonable course.