Wednesday, March 13, 2024

The Year of Elections



To readers of the Five Things newsletter: We wanted to let you know about this special new newsletter, 

on the votes that matter to markets, business and policy amid the most fragmented geo-economic landscape in decades. We're sharing the first edition below. To keep receiving this newsletter, delivered occasionally ahead of key votes, sign up here.

Whether you’re a hedge fund manager on Wall Street, a commodities trader in London or a bond investor in Singapore, you know that countries with almost half of the world’s population vote this year.

Many of these votes are predicted to bring a tilt toward authoritarian rule across the globe. Cumulatively, they’ll show how dramatically the center of gravity has moved away from the post-World War II order and US-led institutions such as the World Trade Organization, the North Atlantic Treaty Organization and the United Nations. 

A Donald Trump victory over Joe Biden in November could move markets as much, if not more, than when the US Federal Reserve cuts interest rates for the first time since the coronavirus pandemic.

Less than two years ago, the mere idea of a Trump return was dismissed inside and outside the Beltway. Plenty of smart money was on Florida Governor Ron DeSantis, whose aspirations met the same fate as an old North Korean missile test: a lot of hype, failure on launch. 

Much of the rest of the world sees the replay of two old men slugging it out in November as a fitting metaphor for the decline of the American empire: the chaotic exit from Afghanistan, the money for Ukraine that has dried up, Israel’s actions in the Gaza Strip going unchecked despite all the finger-wagging from Washington. In this environment, friends and foes are drawing their conclusions.

Biden and Trump both held rallies in Georgia on Saturday. Photographer: Jim Watson/AFP/Getty Images, Chip Somodevilla/Getty Images

Over the coming months, we’ll connect the dots on elections from Mexico to South Africa and explain why they are important even when the outcomes —including Vladimir Putin winning in Russia and Narendra Modi tightening his grip on India — appear predictable.

Latin America, once disparagingly known as the US’s backyard, is where Washington regularly played regime change. No more. It failed to oust Nicolas Maduro in Venezuela, and now he’s effectively in a one-horse race in July that’s a testament to the limits of US power in the region.

You see it in Mexico’s swagger as it overtook China as the US’s largest trading partner and boasts of an unstoppable peso. How much influence Andrés Manuel López Obrador will exert over his anointed successor will be one lens through which to look at how Trump will weaponize a hot-button issue like migration.

India is JPMorgan’s top market pick in Asia, and Modi has not been shy in showcasing his ambition to become a driver of global growth. The killing of a Sikh activist in Canada was notable for the lengths the US and others went to avoid a confrontation with a rising superpower. If the ruling Hindu nationalist Bharatiya Janata Party imposes itself in parliamentary elections, Modi will assert himself even more on the world stage.

One would have to go back to 2016 for a year as potentially geopolitically disruptive as this. The referendum on Brexit and the election of Trump unleashed a populist genie that is still playing out and comes full circle in European Parliament elections in June that are predicted to leave a national conservative footprint in the European Union. On Sunday, Portugal became the latest to experience  the surge of right-wing political forces.

The UK, now on its fifth prime minister since voting to quit the EU, is expected to opt to lean left instead, and perhaps reassess its ties to Europe as well as its “special relationship” with Washington.

In Africa, seven coups in the past three years are a reminder of the fragility of young democracies. In South Africa, the party of Nelson Mandela will need to come to terms with its own disappointing legacy, and Ghana will be a window into how debilitating debt preys on one of the world’s poorer nations. Senegal’s delayed election will become the ultimate stress test for the West African nation.

Two years after Russia’s invasion of Ukraine, Putin appears stronger than ever, with Western warnings that he has his sights on the Baltics and perhaps even Moldova. That’s a scenario preoccupying Lithuanians voting for a new president and parliament this year. The “West” in the form of the Group of Seven thought it could bring the Russian economy to its knees with sanctions and an oil price cap. Well, it didn’t.

The limits of the geo-economic toolkit work both ways, of course. China will need to take stock of how its bid to court Europe has backfired, with growing skepticism of Chinese investments. The US and others should note that their attempt to take down Huawei failed, but the technological rivalry is still very much on — watch TikTok’s fate — and Taiwan, whose TSMC chipmaker is the world’s most advanced, is caught in the crosshairs.

Would the US go to war to protect a democracy off the coast of China? In a world where Trump wins, and he pulls out of NATO and defunds the UN, the likes of Putin may seize an opportunity for a bigger land grab, and China may spot an opening to pounce on Taiwan, which it considers part of its territory and denies it will take by force.

These are considerations that will form the backdrop to a ruling party election expected in Japan, home to more than 50,000 US troops that, in the event of a conflict in Asia, would be mobilized. And if all that feels far-fetched, consider the assessment of billionaire investor Paul Tudor Jones, who in the aftermath of Oct. 7 Hamas attack on Israel, saw the US in its weakest position since World War II.

In short, not all elections are created equal, but in the lead-up to November, tune into our newsletter as we tease out each vote’s international relevance and war game what to expect in 2025. — Flavia Krause-Jackson 

An African National Congress supporter with a t-shirt featuring South African President Cyril Ramaphosa in Durban on Feb. 24. Photographer: Leon Sadiki/Bloomberg

Global Economy Q&A

We spoke with Tom Orlik, the chief economist at Bloomberg Economics, based in Washington, for his perspective.

The big one for 2024 is the US presidential race. How will economics impact the outcome?

Orlik: With inflation heading back to target and unemployment low, Biden will be hoping that a soft landing is a vote winner. The trouble is, the way voters think about inflation is very different from the way economists think about it. Yes, by November the year-on-year change in prices will likely be close to the Fed’s 2% target. But voters will care more that the cost of their weekly shop has rocketed up since Biden took office.

This is going to be an election which is about a lot more than economics. Biden’s age, Trump’s court cases, and the Supreme Court ruling on abortion could all have a bigger impact on the outcome. To the extent that economics does factor in, it’s probably bad news for the incumbent, good news for his predecessor. Trump certainly seems to think so — his Super Tuesday speech included an extended riff on inflation hurting US households.

Relations with China were on the ballot for Taiwan in January, and they'll be on the ballot for the US in November. What are you expecting?

Orlik: In the Taiwan election, the win for William Lai — who China regards as a firebrand for independence — could have been the trigger for escalating tensions. So far, though, the reaction from Beijing has been muted. Bloomberg Economics' Taiwan stress index — which tracks rhetoric from China’s diplomats and military activity in the Taiwan Strait — has been basically flat. We’ll see if that changes ahead of Lai’s inauguration in May.

The US election is another potential catalyst for rising temperatures. Trump knows from 2016 that tough on China is a vote winner. He’s already trailed a 60% tariff on all US imports from China — enough to effectively turn off all trade between the world’s two major powers. That increases pressure on the Biden administration to show its China hawk talons. Controls on electric vehicle imports are a potential area of focus.

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The Markets Take

Simon Kennedysenior executive editor who oversees macro markets, discusses possible reactions.

Asked recently when they start taking elections into account, a group of traders agreed the traditional rule of thumb was three months out from the opening of ballot boxes.

But so shocking to markets was Trump’s 2016 victory (and the same year’s Brexit vote) that some are already starting to game out this year’s US election.

Those who reckon Trump will return to the White House are eyeing ways to bet against US bonds on the basis he would fan inflation by making his 2017 individual tax cuts permanent. His talk of imposing tariffs on imports, especially those from China, would likely boost the dollar by hurting the currencies of trading partners.

According to Mansoor Mohi-uddin of Bank of Singapore, gold’s recent surge may also be explained by investors bracing for geopolitical uncertainty by purchasing a traditional safe-haven asset.

But Mohi-uddin adds that the election still remains highly uncertain, leaving markets somewhat at the risk of volatile opinion polls in the meantime.

For once, it may actually be easier to predict the results of emerging markets votes. India is expected to return Modi to office in coming weeks, while former Mexico City Mayor Claudia Sheinbaum has a clear lead in national surveys.

As always, there are rewards for calling elections correctly early, but losses for those who get it wrong.

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More from Bloomberg

  • Tune into The Year of Elections, Bloomberg’s new newsletter on the votes that matter to markets, business and policy, delivered periodically throughout the year
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Shift With Far-Right


Portugal Joins Europe’s Shift With Far-Right Support Surging

  • AD alliance wins, but is short of a parliamentary majority
  • Far-right Chega quadrupled number of lawmakers in election
Portugal Election: Minority Government, Center-Right Win
WATCH: The center-right Portuguese party AD has won Sunday’s elections. Ben Sills reports.Source: Bloomberg

The rapid growth of right-wing political forces across Europe hit Portugal on Sunday as the Chega party surged in support and quadrupled its seats in parliament.

In an early election, the center-right AD alliance took the most seats and is expected to form a government. It beat Socialists, whose vote share collapsed.