Global economy hangs in balance as investors brace for election result

November 5 was punting day. In Australia, we had the Melbourne Cup. In the United States, it was the day American voters determined the outcome of the most consequential punt on modern-day democracy, the future shape of the global economy and trajectory of the world’s stock markets.

The ramifications of Trump’s now almost-certain victory will be felt beyond American shores.

His secret sauce of weaponising the discontent of his rusted-on base – the core of which is blue-collar manufacturing workers duped into believing he is their super-saviour – has paid off, and the win will irrevocably embed the template of grievance politics in other democracies, including Australia.

Donald Trump and Kamala Harris.Credit: AP

While the US economy and Wall Street is in a better shape than it has been in some time, Trump’s chaotic campaign – marked by bizarre twists and turns – has still managed to successfully rally voters on the big hip-pocket question: are they better off today than they were when he was last in office?

It’s message that has clearly resonated.

US voters are fixated on the soaring costs of goods, victims of a shock assault that has left them angry at everything from supermarkets to insurance companies.

This rage pays little heed to statistics that show wages in the US have kept pace with or exceeded inflation over the past couple of years. So purchasing power, in theory at least, has not fallen.

Cost of living has certainly been challenging for those with mortgages, thanks to more than two years of rising interest rates. But even this is beginning to recede in the US.

And the willing followers of Trump’s evangelical Make America Great Again message are immune to the fact that the government stimulus that is largely responsible for the leap in inflation has also saved the country from large-scale unemployment.

Inflation, and where it goes next, is the biggest issue at stake for global markets as the votes are counted. Sustained inflation is toxic to any economy, and the prospect of Trump returning to the White House holds the potential of sending it soaring in the US. Trump’s electoral platform of increased tariffs (60 per cent on Chinese goods and 10 per cent on goods from other nations), lower taxes and stricter immigration rules provides the preconditions for a second wave of inflation.

Fed chairman Jerome Powell has been relentlessly bludgeoned by Donald Trump over rates.Credit: Andrew Harrer

The US central bank, the Federal Reserve, has so far managed to engineer a successful soft landing for the economy. It could just as easily have gone the other way: a recession created by high interest rates. It is expected to cut interest rates by 25 basis points this week, which usually sends Wall Street flying, but if Trump does end up winning, the Fed may have to rethink its position on where interest rates go next.

The Fed’s reaction to the aftermath of the election results, and a potential Trump victory, will dictate market sentiment in the US, which in turn will shape how the rest of the global markets, including the ASX, move.

The US markets have been at near historic highs in the lead-up to the elections, and corporate profit margins are generally in rude health. But the support for Trump highlights the yawning gulf between what Wall Street is feeling and the broader community sentiment.

With that in mind, it is noteworthy that big US corporations have largely stayed on the sidelines of this election – other than Trump’s No.1 fanboy, Elon Musk.

For big business, the appeal of Trump is heavily influenced by the hip pocket. His stated objective of lowering corporate taxes from 21 per cent to 15 per cent is alluring when compared to Harris’ plan to raise them to 28 per cent. US investors have been placing better odds on a Trump win.

A Macquarie Group research note this week said that with the past three US presidential elections, the US stock market rose more than 20 per cent over the following year.

It also noted a potential consequence of another scenario that is impossible to quantify – the outbreak of civil unrest in the event the outcome is not accepted by the loser.

The world needs to brace for that one.

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