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How Will the New Biden Administration Impact UK and Global Markets?

Posted by MoneyController on 05.02.2021

Joe Biden is officially the new US President and market observers around the world are eagerly awaiting to see what implications his new policies will have. Let’s take a look at what’s on the table.

Impact on UK markets

Regarding the economy, we can expect a couple things so far. Last month, Biden stated that a new trade deal with the UK would be necessary, but his focus seems, for now, to be on repairing broken relations with the EU, particularly France and Germany. Simon French, Chief Economist at Panmure Gordon, has pointed out that, “The possibilities for greater UK-US trade are enormous – but to pretend that making this happen won’t create anger amongst farmers and healthcare professionals is naive. Most observers conclude that neither Biden nor Johnson will walk-the-walk needed for a ground-breaking trade deal.”

Most of British policymakers expect that under Biden’s presidency, the US will maintain a similar position toward the UK, particularly on economic issues concerning Russia and China. Biden’s administration is likely to work towards recovering US support for NATO, the World Health Organisation, and the World Trade Organisation. 

The reality is that in the current climate of uncertainty, President Biden will likely focus on dealing with and fixing America’s domestic problems, rather than making amends with the UK, at least in the short term.

Impact on global markets

The global economy has been ravaged by COVID-19 and experts remain anxious on Biden’s new policies. In his first day as President, Biden revoked approval for the Keystone XL oil pipeline and rejoined the Paris Climate Agreement. This is indicative of his attitude towards fossil fuels, namely, the new administration’s slow move away from them. Nevertheless, this will likely be a longer-term focus, because stimulus packages and the new infrastructure plan the Biden administration proposes will cause an uptick in oil consumption. If this happens, oil demand should increase to 350,000 barrels per day, which would boost oils prices worldwide.

At the same time, Biden is “more likely to be softer on Iran and a lifting of sanctions is possible,” according to James Williams, energy economist at WTRG Economics. “That puts more oil on the market and downward pressure on price.” Whether this is likely to happen to other sanctioned countries is also uncertain. But many analysts conclude that Biden will lead U.S. foreign policy on a diametrically different trajectory than that of his predecessor, so a lot of changes are likely to be underway. 

Analyst Russ Mould has stated that “Investors will also look for any guidance on how quickly and to what degree Biden and Harris plan to hike US corporation tax, as that will hit companies’ net profits and in the end, it is profits and cash flow that matter more over the long run to share prices and equity valuations that pure politics.” Depending on how their corporate tax plan works, more investors could again consider the US to be a valuable business partner.

Takeaway

We are still in unknown territory since the pandemic has not been resolved yet and vaccination distributions are taking longer than expected. It is very possible that we still see markets decline in the near term despite Biden’s decisions and deal proposals; but one thing is certain: US policies are going to change, and we’ll see the effects of those later on.

 

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