The Trump campaign has already requested recounts in several states and we expect President Trump to use every possible means to contest the election results if they appear to be against him. A judiciary battle could last until 08 December (deadline for re-counting and legal disputes, six days before the Electoral College meets on 14 December to vote for President and Vice President), potentially requiring the intervention of the Supreme Court.

The U.S. political decisional process could be frozen until January 2021, even as government intervention is urgently needed to smooth the economic impact of a second Covid-19 wave.

We expect stringency of confinement measures to increase over the next six to eight weeks to slow down the spread of the virus, with a peak in January 2021.

In this context, a delayed stimulus caused by the judiciary dispute and political fragmentation will drag the performance of U.S. GDP growth in Q4 2020 and Q1 2021.

During the freezing of budgetary decisions until the beginning of next year, the U.S. central bank will be on its own in dealing with the negative shock in Q4 2020 and the beginning of Q1 2021. We expect the Fed to re-accelerate the pace of securities purchases before year end.

A modest steepening of the Treasury yield curves is to be expected, in line with the rapid increase in public deficit and debt ratios that will in any case happen.

Even if an increase in the corporate tax rate is less to be feared than in a blue wave scenario, the overvaluation of U.S. equities remains a source of concern as it provides little cushion against adverse outcomes.

Our worries regarding the corporate bonds segments have increased, notably for the high-yield segment as it is not part of the Fed’s classic job description to lend to insolvent non-financial businesses.