How Joe Biden’s Presidency Will Affect the Financial Markets

On January 20 Joe Biden was officially sworn in as the 46th President of the United States. Although he has only been in office for a few days, the new POTUS has already outlined his main plans.

He has also taken steps to start implementing them. The SuperForex analysts team decided to research what to expect from Biden’s presidency and how it may affect the financial markets.

Fiscal Stimulus

Even before his inauguration, Biden revealed a stimulus bill worth $1.9 trillion. The funding will go to various purposes, most notably to deal with the fallout of the coronavirus crisis.

For example, more money will go to local governments, allowing them to purchase protective gear and take better measures against the spread of the coronavirus.

It will also permit them to hire more people to operate vaccination centers or help speed up the vaccination process in other ways.

Furthermore, the bill also plans to boost the value of stimulus checks. Right now direct payments are worth $600 per person. Biden wants to add $1,400 to this amount and round it off at $2,000 in total. 

If the President is successful in passing his stimulus package through the Senate, the US economy will take a breather. Increased government spending goes hand in hand with a boost in US stock indices and risky assets, as well as a weakening of the dollar.

It is important to note that Senate Republicans are likely to oppose parts of the legislation.

Biden has already spoken about changing his proposal to reach a compromise. In any case, the previous stimulus package will run out in mid-March, so an agreement on Biden’s bill must come by then.

Covid-19

The President’s plan to combat the coronavirus pandemic goes hand in hand with his stimulus bill. Money is crucial for the launch, maintenance, and operation of vaccination centers. 

Biden has vowed to see 100 million vaccinations during his first 100 days in office. He faced nuanced criticism over this, some arguing that it is not possible, others saying it is not anywhere near enough.

He later set another goal: 300 million vaccinations before the end of summer. 

Naturally, there are many challenges with such ambitious vaccination plans. For once, Biden’s coronavirus response team said that the previous administration didn’t leave them any sort of fledgling plans or structures, so the process of vaccinating the US population is starting from scratch.

After all, during the full month of vaccinations under Trump, barely 10 million doses were administered. 

It will take time and money to build the infrastructure and hire the staff necessary to carry out the vaccinations.

There will also need to be some convincing, as some Americans are unwilling to get vaccinated. Plus, there may even be supply shortages like in the EU. 

In any event, Biden has proven he is serious about tackling the pandemic. He has formed teams to deal with each potential problem. If the administration stays on schedule with vaccinations, the prospect of an economic recovery in the US will improve.

Like the stimulus bill, this will boost stock indices and weaken the USD further.

The Middle East

With the coronavirus pandemic and the domestic economic crisis, Biden has his hands full already. However, his approach towards the Middle East is likely going to be the most important foreign policy issue for Biden.

After Donald Trump abandoned the Iran nuclear deal negotiated by Obama, the Middle East became less safe. There have been several explosions linked to Iran.

The country also recently started enriching uranium again, which may give it nuclear weapon capabilities. 

Biden is likely going to restart the negotiation process with Iran and try to secure a nuclear deal again. Under the previous agreement, Iran had to abandon nuclear weapons but was allowed to sell oil without sanctions from the US. 

This week the United States deployed more troops in Saudi Arabia, after mysterious explosions in the capital Riyadh.

Even though domestic issues take precedence for the US at the moment, this move shows Biden is keeping an eye on the Middle East.

An agreement with Iran and a more peaceful Middle East will likely result in more crude oil flooding the market, driving prices down. Still, we may be many months away from such developments.

Conclusion

The main issue to watch out for is the healthcare and economic crisis caused by the coronavirus pandemic. If Biden brings those under control through stimulus and a better vaccination program, the US (and global) economy will recover faster.

This, in turn, will shift sentiment in favor of risky assets, while weakening safe havens like the dollar, the Japanese yen, and the Swiss franc.

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