Clinton vs Trump: The crucial swing states

<p>Electoral College System Under the Electoral College System, it is the candidate who wins the most electoral votes, not necessarily the popular vote who wins […]</p>

Electoral College System

Under the Electoral College System, it is the candidate who wins the most electoral votes, not necessarily the popular vote who wins the Presidency. Every state, except Maine and Nebraska, award votes on a winner takes all basis. In other words, if a candidate achieves more than half of the votes of a state, he or she gets all the electives. Given that there are 538 electors, both candidates are trying to add up the electoral votes from every state so that they surpass 270 (just over half of the 538 votes) and win Presidency.

Swing states

Even before any vote is cast we can have an idea as to which candidate may win the majority in which state. However, others are too close to call and these battle grounds or swing states are the ones that could swing the results of the election and have the greatest impact on market movements.

Clinton currently has 172 solid electoral votes, plus 90 leaning (total 262), whilst Trump has 93 solid and 33 leaning (total 126). There are 150 toss up electoral votes, Trump would need to win 146 of these to win Presidency, a very steep road to the Whitehouse but not impossible.

The states to watch:

Florida – Any signs of a Florida win for Clinton could mean that she has it in the bag; with 29 electoral votes, Trump would have to win almost every other swing state to stand a chance.

Clinton clinch Florida we would expect to see a relief rally in the dollar; history shows that the US currency reacts more favorably to Democrats in the Whitehouse. Furthermore, Clinton is a known player, whose policies are expected to be a continuation of the current administration, a safe, solid bet in the eyes of the markets, therefore we would also expect the S&P to take a step higher.

Texas – With 38 electoral votes, Texas is another important battle ground. This state looks as if it may be leaning towards Trump and if this proves to be the case, then we could expect to see a further weakening in emerging market currencies, particularly the Mexican peso, one of the more vulnerable currencies in this space.

A Trump win in Texas would also be expected to put upward pressure on the yen, a go-to safe-haven currency, which could see increased inflows as the uncertainty of a Trump presidency intensifies. Moreover, we would expect a drop in the S&P; Republicans are usually considered pro-business, however Trump and his economic position are less predictable and don’t necessarily fall under party orthodoxy, so investor perception of stock market risk would be expected to rise as the possibility of a Trump Presidency increases and therefore we would expect the S&P to tumble southwards.

Ohio - Another one to watch closely with 18 electoral votes. This reliable bellwether state is the only one to have backed the successful candidate in every election since 1964.

Trump needs to win Ohio to have any chance. Should Trump win here we could expect to see the same flight to safety in the markets as we would with Texas.

Conversely a Clinton win could send the dollar and the S&P higher as a Clinton Presidency would be almost certain.

Arizona, North Carolina and Georgia are other high electoral vote swing states, which the candidates will be keen to win and the markets will be paying close attention to.

What if no candidate receives 270 electoral votes?

In this case the House of Representatives elects the President. Each state delegation gets one vote. 26 votes are required to win and if the house fails to choose a President by inauguration day January 20, then the Vice-President elect serves as President until the house makes its choice.

This scenario is looking increasingly unlikely given Clinton’s lead in the polls.

What if Trump concedes?

Failure by Trump to concede defeat would throw American democracy into unchartered territory but legally speaking it is irrelevant whether the loser concedes the election or not. Trump could mount a legal challenge to contest the result or demand a recount but unless the vote margin is slim his chances of being successful are slight.

Both circumstances would create an unstable landscape and significant volatility for both currencies and indices, which dislike nothing more than uncertainty. Either of these situations could be interpreted as an increased likelihood of Trump taking power and therefore the S&P index and emerging market currencies would be expected to fall, whilst safe havens such as gold and the yen could point higher.

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