Harris’s Inaugural Economic Blueprint
With the United States Vice President Kamala Harris stepping forward as the Democratic presidential nominee, succeeding President Biden, and the stage set for her contest against former President Donald Trump in the 2024 election, the economic focus couldn’t be more pivotal. Amidst years of high inflation, economic stewardship has climbed to the top of American voters’ concerns. The electorate is keenly attuned to the nuances between current and proposed economic policies as they ponder which direction would truly bolster their financial wellbeing.

As the Presidential election draws nearer, Harris unveiled her first economic policy agenda on August 16th. Her primary focus: the cost of living for American families. Addressing concerns like food prices, taxes, housing costs, and healthcare, Harris outlined a broad spectrum of initiatives aimed at tax reductions for the majority, curbing price gouging, lowering essentials such as groceries, and increasing the availability of affordable housing as keystones of her “Opportunity Economy.”

The Homefront Challenge:

Reducing the Cost of Living
Harris proclaimed her intention to advocate for the nation’s first federal law prohibiting price fraud on food and everyday goods. This includes empowering governmental agencies like the Federal Trade Commission (FTC) to investigate and penalize large corporations for anti-competitive practices, such as price fixing in the food and general goods industries, and to increase the penalties for raising prices unfairly, especially for daily necessities like gasoline.

Should she triumph in the election, Harris’s policies would see the continuation of a $3,600 tax credit for eligible children becoming permanent, with new $6,000 tax credits for families with infants as well as expanded earned income tax credits, effectively cutting taxes by $1,500 for front-line workers. Building on her proposed “Middle-Class Act,” Harris aims to offer a $500 monthly tax refund to those earning under $100,000, replacing the Trump-era tax policies instituted in 2017.

In addressing soaring housing costs, Harris packages a plan featuring home-buying subsidies, an increase in housing supply, and a crackdown on rent hiking practices. She pledges a $25,000 down payment subsidy for first-time buyers, the construction of 3 million new affordable homes and rental units by the end of her first term, and legislative measures to combat predatory rent increases by corporate landlords. Moreover, she promises to further reduce healthcare costs, including more substantial insurance subsidies via federal insurance marketplaces, capping out-of-pocket prescription drugs costs at $2,000 annually, and eliminating medical debt for millions of Americans.

The Fiscal Balancing Act:

Potential Strain on Long-term Government Debt
Economists weigh in, suggesting that Harris’s economic vision, punctuated by policies of reducing prices, lowering taxes, and bolstering social security, could mean an uphill battle against a fiscal deficit post-election and intensify the long-term national debt burden.

Research from the Committee for a Responsible Federal Budget (CRFB) predicts that Harris’s policies would lead to an increased deficit of $1.7 trillion over a decade (fiscal years 2026-2035). Permanent housing policies could push this number to $2 trillion. Against a GDP of $22.4 trillion in 2023, the 10-year addition of a $2 trillion deficit could raise deficit rates by an average of 0.9 percent annually, suggesting post-election fiscal policies may favor expansion over austerity. Notably, the CRFB research includes only the policies laid out in Harris’s recent address and does not account for proposed minimum wage hikes or expenditures in manufacturing sectors like renewable energy, semiconductors, or immigration fields – all of which could further compound the deficit should Harris win the election.

Polls have previously shown Trump leading Harris on economic issues – for instance, a recent survey by CNBC reveals voters believe they’d fare better economically under Trump. With economic voters reportedly favoring Trump by a 2:1 margin, it’s notable that Trump frequently capitalizes on voter economic pessimism to campaign, dubbing market downturns as ‘Kamala Crashes.’

The Market’s Pulse and Political Prognostications

With only three weeks remaining until the U.S. presidential election, traders have incorporated the prospective risks into their pricing strategies. Brian Garrett, a trader at Goldman Sachs, noted today that the VIX volatility index remains elevated—a rare occurrence when juxtaposed with the S&P 500’s record highs.

A Turn of Tides in the Electoral Race

Amidst this backdrop, the electoral tides have turned. The CICC team, led by Liu Gang, has observed a reversal in fortune; Trump has overtaken the previously surging Harris not only in betting odds but also in six of the seven key swing states, further complicating the electoral calculus.

The Index of Expectations

Goldman Sachs reports that their basket index betting on a Republican victory has soared to new heights, while the index wagering on a Democratic win continues to wane.

The Asset Impact of Election Outcomes

CICC posits that the success of the president in garnering congressional support, particularly from the House of Representatives which steers fiscal policy, will directly impact the feasibility of advancing relevant policies.

Scenarios Unfold

CICC outlines four potential scenarios:

• A Republican sweep (39%): A scenario akin to Trump’s 2016 victory, favoring the advancement of his policy agenda, particularly tax cuts.
• A Democratic sweep (18%): A repeat of Obama’s 2008 victory, which would likely ease the implementation of Harris’s fiscal policies.
• Trump + Democratic House (13%): Similar to the divided Congress post-2018 midterms, suggesting Trump may face challenges in fiscal policy but could pivot to trade policies via executive actions.
• Harris + Republican House (5%): Echoing the dynamic post-2022 midterms, indicating Harris may struggle with fiscal policy initiatives, potentially continuing Biden-era policies and administrative adjustments.

The Market’s Anticipated Reaction

CICC believes that the direction of asset impact, aside from the inherent differences in Trump and Harris’s policies, will also be influenced by the order in which policies are implemented. The probable direction is as follows: overall positive for U.S. stocks, though tariffs may negatively impact Chinese assets; a stronger dollar, neutral gold, rising interest rates; and commodity resources may benefit from Trump’s stimulus expectations.

Navigating the Shifts in Japan’s Leadership and Monetary Future
As the curtains rise on the Liberal Democratic Party’s presidential race, the impending departure of Prime Minister Kishida Fumio heralds a new era of leadership in Japan. Investors and market analysts await with bated breath the economic policies the new premier will enact and the potential ramifications these policies may have on the Bank of Japan’s monetary strategy.

The Heat of the Election:

The Stiff Competition in LDP’s Presidential Race
The race for the LDP crown is a frantic scramble with a plethora of candidates vying for the top spot. A recent survey, conducted between September 13th to 15th by Nikkei News and Tokyo TV, has thrown the race wide open, with no clear frontrunner in sight. The poll suggested a three-way near deadlock among former LDP Secretary-General Shigeru Ishiba, Minister in charge of Economic Security Sanae Takaichi, and political scion Shinjiro Koizumi.

Market Sentiments:

The Anticipation of New Economic Directives
Market sentiment is largely governed by the expected economic and financial policies of the LDP leadership contender who will claim victory. The election methodology, which equally weights the votes from LDP members across prefectures and LDP Diet members, only adds to the suspense of the outcome.

Candidates’ Influence:

Diverse Backgrounds, Unique Vision
Shigeru Ishiba, leveraging his experience as Japan’s former defense minister, mounts his fifth attempt for LDP leadership. Sanae Takaichi, the spotlight-loving female contender, makes her second attempt after her defeat to Kishida in the previous race. Meanwhile, political ‘rising star’ Shinjiro Koizumi banks on his lineage with the endorsement from former Prime Minister Suga Yoshihide.

The Central Bank Equation:

Speculating the New Prime Minister’s Stance
Investors speculate over the new prime minister’s potential influence on the Bank of Japan’s interest rates, especially after Takaichi’s nod towards maintaining lower rates. Despite exiting negative interest rate policies in March and undergoing a rate hike up to 0.25%, the Bank of Japan faces growing inflation pressures justifying additional rate increases.

Currency Dynamics:

The Yen in the Global Market
A recent surge in the yen and subsequent market discussions, including those by BOJ board member Nakagawa Junko hinting at further rate hikes congruent with inflation trends, spell a period of potential financial market volatility. BOJ’s Executive Director Tamura Naoki’s comments indicate that future rate hikes could potentially exceed current economic forecasts, positioning the neutral policy rate at 1% or higher.

Market Reactions:

The Central Bank’s Balancing Act
Amid the policy shifts and market stirrings, the new Japanese leadership’s vision for national economic stewardship and their approach to central bank policy are under intense scrutiny. The BOJ’s interest rate adjustments, interlaced with market stability, forecast inflation, and economic growth, are central to this financial saga. While the BOJ is likely to hold steady in its September meeting, the economic discourse anticipates further interest rate hikes by year-end.