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Did Markets Start Pricing Out Donald Trump On Monday?

“We’re still optimistic based on his unbelievable progress”, Mark Meadows said Monday, during remarks to Fox News.

He was, of course, referring to Donald Trump who, according to CNN, “demanded” to return to The White House on Sunday. People familiar with the situation said Trump was concerned his stay at Walter Reed made him look weak in the public’s eyes. That directly contradicts what Trump himself said in a video message over the weekend, when he insisted that staying holed up in the bedroom at 1600 Penn. would make him seem ineffectual.

Meadows went on to praise Trump’s strength in the fight against the virus. To be sure, Meadows was just doing his job ahead of an announcement on the president’s discharge, but his comments nevertheless conjured comparisons to authoritarian propaganda. Later, Trump returned to The White House, took off his mask, and posed for pictures.

Meanwhile, Kayleigh McEnany is positive.

“After testing negative consistently, including every day since Thursday, I tested positive for COVID-19 on Monday morning while experiencing no symptoms”, she said, in a statement.

In an effort to get out ahead of what are sure to be accusations from the media, McEnany proceeded to insist that she did not knowingly endanger members of the press. “I definitively had no knowledge of Hope Hicks’ diagnosis prior to holding a White House press briefing on Thursday”, she said.

In addition to having a “the lady doth protest too much, methinks” feel to it, McEnany’s statement inadvertently supplied the press with questions.

Obviously, this is a train wreck and social media wasn’t shy about posting looped animations to that effect. Mike Pence is still negative as far as everyone knows, but this situation has an inescapable “next shoe to drop” feel to it.

It is not a stretch (at all) to suggest that Monday’s price action across both equities and rates was indicative of the market pricing out a contested election outcome. That’s just another way of saying both stocks and bonds are pricing out Donald Trump.

30-year yields jumped the most in a month, steepening the 5s30s in the process.

While some of the back-up at the long-end was attributable to Trump’s weekend remarks about fiscal stimulus, expectations of a Democratic sweep are fuel on the fire. That is: If there’s any outcome the market believes would surely lead to more stimulus, it’s a Democratic sweep.

So, if Trump is pressing for more stimulus, and his odds of being reelected are falling, that means you’re likely to get more stimulus either way. That’s bearish for the very long-end as investors will expect more supply and wider deficits.

30-year yields are now right at their 200-day moving average, a level not breached since March of 2019 on a quick glance.

This comes as shorts in long-bond futures were extended, while bullish positions in the 10-year hit three-year highs.

One way to explain the juxtaposition is simply by pointing to higher odds for bigger deficits, more spending, and reflation. That kind of outcome is most likely under a Democratic sweep.

As Bloomberg’s Edward Bolingbroke notes, supply was a factor on Monday too, “as IG credit offerings, some with 10- and 30-year tranches, line up [while] Treasury plans for 10- and 30-year reopenings this week”.

Still, the message from markets into the US afternoon Monday could plausibly be construed as one in which traders now view the odds of a contested election outcome as having moved materially lower.

Or, put differently, the market seems to think that recent events are making Trump’s reelection bid (and Republicans’ chances of holding the Senate) increasingly tenuous.


8 comments on “Did Markets Start Pricing Out Donald Trump On Monday?

  1. I’m glad that Mark Meadows agrees that Trump is “unbelievable”

  2. derek says:

    Investors and specs may also be relieved that President Trump will still be alive on election day. The alternative of a last minute substitution of a Pence/Haley ticket might be too messy.

    • runamok says:

      The Constitutiion scholars must be all lathered up about the prospect of the 25th being invoked. With Trump alive, prior to inauguration day.

      Too early to think about what more the WH is going to burn down between election day and inauguration day if they lose.

  3. runamok says:

    That chart of 30-year rates is something. Last touch for 200 DMA was back like 18 months ago. Wow!

    I think it’s way too early for it to breakout. We could be entering a phase of deflation right now that is going to last months. Then maybe rates start going up. Need that stimulus bill. I’m still in the lower-lows camp for long rates. A final trade. Today is a good day to pick up some TLT or EDV for the trade.

    • Ria says:

      For a long while I have been posting here, that a contested election was unlikely. I dont think trump loses by 14, but 10 is a distinct possibility. Say goodbye to the senate, gop.

      • Darkstar says:

        I think we’re virtually assured of a contested election – I mean, Trump’s been saying for months, if not in so many words, that he’ll only accept the results if he wins. And William Barr and hundreds of lawyers are already preparing the case. Worse case scenario – a clear Biden win on election night, and Trump refuses to concede because he claims many of the votes already counted were mail-in ballots and therefore fraudulent. More likely, a narrow Biden victory on election night, or a narrow Trump victory, and Biden wins over the next few days as mail-in ballots are counted (essentially what happened in multiple CA congressional districts in 2018). In those 2 cases, I’ll bet you my house Trump contests the election.

        • derek says:

          Darkstar – Are you a GD fan?

          Hard to quibble with your read there. But I sense that the president’s performance in the debate made it t less likely that masses of supporters will be willing to walk over a cliff to try and overthrow a Biden victory.

          Anecdotally only here, but I’ve encountered or been told about a few really die-hard Trumpers who were put off by his behavior in the debate. Yeah, they will probably still vote for him, but it’s less likely that they will pull their assault rifles out of their unlocked closets and march or scooter to DJT’s defense.

          I’ll have to check the ammo websites and see if that’s starting to be reflected in availability and pricing. No more $2 shells?

      • jyl says:

        I wonder how a contested election can be avoided. One candidate would have to win so hugely in the electoral college that the outcome could not be changed by reversing some state results. For a Biden win, if he doesn’t win FL GA OH then his max possible EC total is about 290, a narrow enough margin that it would well worth Trump’s while to contest, say, PA’s 20 EC votes. If Biden did win some of FL GA OH, then Trump can contest those. Why would Trump not contest? He has nothing to lose and much to gain.

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