Trump Trims Biden's Lead, New Hampshire Swings Republican, the Dollar’s Election Decline

Joaquin Montfort | August 04, 2020

In this update, Trump gains New Hampshire, Texas reverts to Republican and the Dollar’s correlation with approval ratings.

Key Takeaways:

  • The election model shows Biden has a 95% chance of winning
  • Trump likely to win New Hampshire
  • The Dollar and its correlation with election politics

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Trump Gains New Hampshire

If the presidential election was held tomorrow our monitor projects Biden winning with 304 electoral votes to Trump’s 234, a change from 308 to 230 previously.

These are optimum projections that lie within ranges of possible outcomes. The range for Biden lies between 275 - 343 and for Trump between 195 - 263. Even if Biden were to only secure the bottom value of his range at 275 he would still beat Trump who would only get 263 electoral votes.

One state, in particular, is responsible for the 4-vote swing - New Hampshire, where an increase in support for Trump over the last few days has led the model to project him winning with a 54.81% probability.

Chances of Winning New Hampshire

A rise in New Hampshire-related news sentiment, which increased by 0.6% overnight, and media attention, which rose by 0.6%, appear to be behind the gains.

The model’s projections are backed up by opinion polls which have shown a large 4% swing to 46% for Trump, versus 44% in favor of Biden.

Polls New Hampshire

Yet despite pushing ahead in New Hampshire Trump is still far from threatening Biden’s lead, and has - in the words of one famous New Hampshirite - still “many miles to go” before election day.

Polls and Projections: Texas Reverts

The election monitor model’s projections provide a probability chance of either Trump or Biden winning in a given state. Normally these projections agree with official opinion polls, but not always, and when they don’t, it is often a sign something is wrong; conversely, agreement is mutually reinforcing.

This week, three states are showing a disagreement suggesting they may be marginal: Arizona, Nebraska, and North Carolina. In all three of these, the model is forecasting Trump to win whilst the polls favor Biden.

In Texas, where polls and projections previously disagreed, both now agree in anticipating a Trump victory. Ohio, which also previously showed non-confirmation, has also now flipped in favor of Trump.

Texas reverts

The Interesting Case of the Dollar And Trumps' Re-Election Chances

Recently we highlighted a strong correlation between the Dollar’s recent decline and Donald Trump’s falling re-election chances.

 Dollar’s recent decline and Donald Trump’s falling re-election chances

The Dollar has been declining because Democrat policies are seen as inflationary which therefore at risk of devaluing the currency. More generous fiscal spending on social programs and a higher minimum wage are two examples of why inflation might go up under a Democrat administration.

Interestingly, a weaker Dollar is itself inflationary, since commodities are Dollar-denominated, so when the Dollar declines, for example, the price of a commodity like oil actually rises purely as a consequence of the change in the Dollar’s value. A weaker Dollar also raises the cost of U.S. imports, further driving up inflation.

It is possible this combination of inflationary factors could cause a negative feedback loop, driving the Dollar lower and lower. Such feedback loops are the basis for famed currency trader George Soros’s investment style - a market philosophy he calls ‘Reflexivity’.

Reflexivity explains why financial markets have a tendency to trend and exhibit fat tail distributions.

A Democrat win is still far off, if it materializes (Trump is not completely out of the race), so it is by no means a given the Dollar will fall further or enter such a spiral. In fact, there are signs the currency is finding a temporary bottom right now and perhaps even showing signs of recovery.

Could this be due to Trump’s re-election chances improving marginally, as reflected in our monitor? Perhaps, though it might also be because of the performance of FAANG stocks after recent upside earnings surprises .

These may be tempting foreign investors back into U.S equity markets after they became cautious due to the worsening COVID crisis. The fact the weaker Dollar now makes U.S. stocks even more attractively priced could be a further draw for foreign investors.

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