2016 Presidential Election

Rob Carnell, Chief International Economist October 2016

Photo source: adamkaz/Getty Images

2

Key Themes

The Great Unpopularity Contest

This is a very unusual election on manyfronts, with deeply unpopular candidates,and atypical policy offerings. From a purelyeconomic standpoint, Trump is moreradical, Clinton more about continuity –but radical does not necessarily threatenthe economy, nor continuity ensurestability

Trump: “Call me Mr Brexit!”

What has driven rise of Trump? Andwhat constitutes a typical Trumpvoter? In particular, we focus on howTrump support mirrors that for Brexitin the UK. We also examine the usualarguments for the rise in politicalpopulism.

Swinging for Victory Policy differences, markets and the economyWe examine the importance of the so-

called ‘swing states’. Will theircharacteristics make it likely that theywill lean more one way than the other?And, will this contradict and confoundthe polls?

Will policy differences between HilaryClinton and Donald Trump be key to theupcoming US presidential election? Thechoice for voters boils down to continuityin the form of Clinton or Trump’s radicalchange agenda.

US ElectionThe Great unpopularity contest

Reagan

G.H.W.Bush

G.H.W.Bush

Dole

G.W.Bush

G.W.Bush

McCain

Romney

TRUMP

Carter

Mondale

Dukakis

B.Clinton

B.Clinton

Gore Kerry

ObamaObama

H.CLINTON

-50

-40

-30

-20

-10

0

10

20

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Net strong favourability ratings,Republican

Net strong favourability ratings,Democratic

4

US Presidential candidates – who do you dislike most?

Donald Trump

Hillary Clinton

Presidential Election November 8th

Net favourability ratings

Source: 270 to Win

• This is a highly unusual election in many respects…• …but the deep unpopularity of both candidates is one of the standout features

5

Main reason for supporting Trump / Clinton…

0% 5% 10% 15% 20% 25% 30% 35%

He is not Clinton

Political outsider

Policy positions

His personality

His American values

He's a Republican

0% 5% 10% 15% 20% 25% 30% 35%

She is not Trump

Experienced

Policy positions

Her personality

She's a Democrat

She's a woman

Her American values

• The principal reason for voting one way rather than the other, appears to be that Clinton is not Trump, and Trump is not Clinton…

• …does not seem a good reason for voting for the most powerful leader on the planet!

Trump supporters – reasons for support

Clinton supporters – reasons for support

Source: Pew Centre for Research Source: Pew Centre for Research

6

Voters’ concerns about their preferred candidate

0% 5% 10% 15% 20% 25% 30% 35%

His temperament

Lack of experience

Policy positions

Others' views of him

No concerns

0% 5% 10% 15% 20% 25% 30% 35%

Her dishonesty

Her past

Policy positions

Others' views of her

Her abilty to lead

No concerns

Among Trump supporters – main concerns

Among Clinton supporters – main concerns

• Even Trump supporters are worried about his temperament – though his lack of public service experience seems to be little handicap

• Even Clinton supporters list her perceived “dishonesty” and “past” as concerns• Negative voting could influence how the vote actually goes – turnout could be

important – it is just not clear which way it will work

Source: Pew Centre for Research Source: Pew Centre for Research

7

Feelings on election day

0% 20% 40% 60% 80% 100%

All voters

Trump supporters

Clinton supporters

If Trump won…

Excited

Relieved

Disappointed

Angry

0% 20% 40% 60% 80% 100%

All voters

Trump supporters

Clinton supporters

If Clinton won…

Excited

Relieved

Disappointed

Angry

• On the day after the election – if Trump wins…

• …his supporters will be more relieved that Clinton did not win than they will be excited that he won

• And if Clinton wins…

• …her supporters will be more relieved that Trump did not win, than excited that she did

• Anger and disappointment is likely to dominate the losing side irrespective of who wins

Source: Pew Centre for Research

8

Feelings towards the campaign

0% 10% 20% 30% 40% 50% 60%

Frustrated

Disgusted

Scared

Interested

Optimistic

Excited

Indifferent

Main feelings about the Presidential Campaign

• Negative sentiments dominate most respondents feelings towards this campaign…

• …words such as “frustrated”, “disgusted”, and “scared”…

• …dominate positive sentiments such as “interested”, optimistic”, “excited” and “indifferent”

• We do not expect sentiment to soar in the immediate aftermath of the election

Source: Pew Centre for Research

9

2012 election

Obama (Democrat) Romney (Republican)332 206

• This is how it shaped up at the end of the last Presidential election

• Note the swathe of red (Republican) through the middle, and the South

• What matters is not the number of states, but the number of electoral college votes

• The more populous states on the North East and North West carry more weight in the Presidential election

• Most states are “winner takes all”

Source: 270 to Win

FL

(29)

MI

(16)PA

(20)OH

(18)

NC

(15)

CO

(9)

IA

(6)NV

(6)

NH

(4)

VA

(13)

WI

(10)

Swing states - 2012 election

• This is where the election will be fought and won, or lost

• There are about 146 electoral college votes that could go either way

• Some are pretty small (New Hampshire – 4 electoral college votes

Source: 270 to Win, ING

10

11

2012 election – electoral college votes map

= one electoral college vote

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.

CA

OR

WA

NV

AZ

UT

ID

MT

WY

CO

NM

TX

OK

KS

NE

SD

LA

AR

MO

ND

IA

MN

IL

WI

MS

TN

ALGA

SC

FL

NC

KY

IN

MI

OH

VA

WVDC

MD ..

.DE

PA

NJ

NY

CTRI

MA

NHVT

ME

.

. ..AK .

..

.HI

• This is how a map of the US looks when mapped in terms of electoral college votes

• The mid-west shrinks

• The Northeast and Northwest coastal regions expand

12

Electoral college votes

E.C. Votes States Total votes3 Alaska, Delaware, DC, Montana, North Dakota, South

Dakota, Vermont, Wyoming24

4 Hawaii, Idaho, Maine, New Hampshire, Rhode Island 20

5 Nebraska, New Mexico, West Virginia 15

6 Arkansas, Iowa, Kansas, Mississippi, Nevada, Utah 36

7 Connecticut, Oklahoma, Oregon 21

8 Kentucky, Louisiana 16

9 Alabama, Colorado, South Carolina 27

10 Maryland, Minnesota, Missouri, Wisconsin 40

11 Arizona, Indiana, Massachusetts, Tennessee 44

12 Washington 12

13 Virginia 13

14 New Jersey 14

15 North Carolina 15

16 Georgia, Michigan 32

18 Ohio 18

20 Illinois, Pennsylvania 40

29 Florida, New York 58

38 Texas 38

55 California 55

Total 538

• NB – you can win this election by taking the 11 biggest states, from New Jersey and up

• Not very realistic, as this “big list” contains some die-hard Republican and Democrat states

Source: Wikipedia

13

Possible swing states in 2016 election

State E.C votes Margin at 2012 election

Colorado 9 5.37 (Obama)

Florida 29 0.88 (Obama)

Iowa 6 5.81 (Obama)

Michigan 16 9.50 (Obama)

Nevada 6 6.68 (Obama)

New Hampshire 4 5.58 (Obama)

North Carolina 15 2.04 (Romney)

Ohio 18 2.98 (Obama)

Pennsylvania 20 5.39 (Obama)

Virginia 13 3.87 (Obama)

Wisconsin 10 6.94 (Obama)

Total 146

Source: Wikipedia, Politico, 538, 270 to Win

14

NOT the economy, stupid!

-300

-250

-200

-150

-100

-50

0

50

100

150

97 97 97 98 98 99 99 99 00 00 01 01 02 02 02 03 03 04 04 04 05 05 06 06 07 07 07 08 08 09 09 09 10 10 11 11 12 12 12 13 13 14 14 14 15 15 16

Economy index

Economy strongFavours Clinton

Economy weakFavours Trump

• Perhaps the most memorable phrase from Bill Clinton’s campaign to take the Presidency from George H W Bush doesn’t apply to this election

• An index which some of the pollsters use comprising payrolls, manufacturing production, inflation and a few others….

• ….is sitting bang on the historical average- favours NEITHER candidate

Source: ING

15

Senate seats and House of Representatives

186 247

0 100 200 300 400 500

Democrats Republicans Vacant

218 needed to win House

2

House of Representatives

46 54

0 20 40 60 80 100

Democrats Republicans

50 Seats needed to win Senate

Senate

• Winning the Presidential election is only half of the race (maybe only a third)• To set policy, the President needs the support of Congress – Senate, and the House of

Representatives• Currently, both lie in Republican control• There is a chance that if Clinton wins the Presidency, she will also take control of the

Senate• It is less likely that she will also take the House – policy setting could still be tricky –

especially with respect to the debt and budgets…more government shutdowns ahead?

• But Trump could also have problems with fiscally conservative Republicans

Source: 270 to Win

16

Correlation – presidential election & senate vote

-0,2

0

0,2

0,4

0,6

0,8

1

1916 1924 1932 1940 1948 1956 1964 1972 1980 1988 1996 2004 2012

Correlation - R

• In recent years, the senate vote has gone hand in hand with the Presidential vote

• This was not always the case

• Given these candidates, it may not be the case this time either

Source: Center for Politics

US ElectionTrump: “Call me Mr Brexit!”

18

What makes a Trump supporter? (1)And parallels with Brexit…

• Spot the difference!• There are strong parallels between Trump supporters and Brexit supporters in the UK

(ask Nigel Farage)• They tend to be older, and they tend to have lower formal educational achievement• In the US, gender and ethnicity are clear differentiating issues (white, and male favour

Trump over Clinton).

18-29

30-49

50-64

65+

Postgrad

College grad

Some college

HS or less

Ag

eE

du

cati

on

US Election

Clinton

Trump

18-29

30-39

40-49

50-59

60+

University

A-Levels

GCSE or less

Ag

eE

du

cati

on

Brexit

Remain

Leave

Source: Pew Centre for Research

19

Total

Men

Women

White

Black

Hispanic

18-29

30-49

50-64

65+

Postgrad

College grad

Some college

HS or less

Ge

nd

er

Eth

nic

ity

Ag

eE

du

cati

on

Clinton

Trump

What makes a Trump supporter? (2)ethnicity / gender

• It is not surprising that Trump is less popular with Hispanic and Black voters…• …or his apparent misogyny has not warmed the hearts of many female voters, at

least relative to Clinton

Source: Pew Centre for Research

20

What makes a Trump supporter? (3)Falling behind

0

10

20

30

40

50

60

70

80

90

Falling behind Staying even Going up faster Falling behind Staying even Going up faster

Trump supporters Clinton supporters

Perc

eption o

f fa

mily

incom

e r

ela

tive t

o c

ost of

livin

g,

%

$75000 ormore

$30000 -$74999

$30000 or less

Family Income:

• In all income groups, more Trump supporters feel they are falling behind the cost of living; angrier yes, but not necessarily poorer

How do you feel about your financial condition?

Source: Pew Centre for Research

-100

-50

0

50

100

150

200

250

300

-10

-5

0

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010 2012

Lowest Middle Three(21st to 80th percentiles)

81st to 99th Top 1%, rhs

Jan 2000 = 0

21

0,30

0,35

0,40

0,45

0,50

0,55

0,60

0,65

Based on After-Tax Income Based on Before-Tax Income

Based on Market Income

Rejection of the establishmentThe “squeezed middle”

After tax income Gini coefficients

• When you look at incomes after tax, the very richest have not done so well

• They see far more incomes volatility…• …are more exposed to fluctuations in asset

incomes, and profits• And there is little support for the notion of

the “squeezed middle”

• Pre-tax GINI coefficients tend to support the received wisdom of increased inequality

• But this is less clear after taxes and transfers.• But does it matter if the perception is there?• And is transfer income or post tax income

“inferior” to pre-tax income? • We suspect it is for many voters

Source: Congressional Budget Office Source: Congressional Budget Office

22

Employment & unemployment by education

0

10

20

30

40

50

60

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

>=Bachelordegree

Some collegeor HighSchool

High SchoolGraduate

< High Schooldiploma

Millions

0

50

100

150

200

250

300

06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16

Bachelor degree

College orAssociate degree

HS Graduates

<HS Diploma

index Jan 2007 = 100

• Since the Global Financial Crisis, employment has risen most for those with a Bachelor degree or higher…

• …for those with some college, it has gone up but only slightly…

• …for everyone else, it has stagnated or got worse

Employment by education Unemployment by education

• But unemployment has fallen most for those with the least education…

• …what is going on? • This is most likely due to departure from

the labour force, rather than a direct contradiction of the employment data

Source: Macrobond Source: Macrobond

23

Manufacturing employment & wages

10

12

14

16

18

20

22

60

70

80

90

100

110

120

130

140

150

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

millions millions

Total non-farm payrolls

Total manufacturing jobs

400

600

800

1000

1200

1400

1600

1800

02 04 06 08 10 12 14

Financial

Manufacturing

All industry

other services

$

• Total manufacturing jobs have fallen for decades, but fell particularly sharply from about 2000…

• ….they have risen since the Global Financial Crisis, but not at as fast a rate as total employment, and their share of employment has fallen further

• Hourly wages in the manufacturing sector are still some of the highest in the US …

• …only finance pays higher…• …and they pay substantially more than (non-

finance) service sector jobs• So if the service sector is mopping up

manufacturing jobs losses, this could account for weak aggregate wages growth

Manufacturing and total employment Average weekly wages by industry

Source: Macrobond Source: Macrobond

24

Clinton supporters

Trump supporters

18-29

30-49

50-64

65+

Postgrad

College grad

Some college

HS or less

Po

litic

sA

ge

Ed

uca

tio

n

% saying free trade agreements have had a negative affect on family's

financial situation...

Negative

Positive

What makes a Trump supporter (4)Antipathy to Free trade?

• It is unlikely to be a coincidence that antipathy to Free-trade mirrors the typical Trump supporters…

• …older, less formally educated…• …does this reflect experience as manufacturing employees / ex-employees?

Source: Pew Centre for Research

25

NAFTA and China – some truths…some half-truths

0

2

4

6

8

10

12

14

16

18

20

85 86 88 89 91 92 94 95 97 98 00 01 03 04 06 07 09 10 12 13 15

China

Mexico

Canada

% total imports

NAFTA starts China WTO accession

• Trade with NAFTA has increased three-fold since the deal was signed…

• …but then it has everywhere…• …what is more interesting is that import

penetration from Canada has actually fallen…• …though it has more than doubled from

Mexico• Imports from China have surged

• But if exports have also grown as much….• Exports to Mexico (as a % of the total) have

risen about the same as imports• Exports to Canada have also decreased as a

% of the total• The standout is exports to China, where

exports have only risen slightly

US import penetration US export penetration

Source: Macrobond Source: Macrobond

0

2

4

6

8

10

12

14

16

18

85 86 88 89 91 92 94 95 97 98 00 01 03 04 06 07 09 10 12 13 15

Canada

Mexico

China

% total exports

NAFTA starts

China WTO accession

26

What makes a Trump supporter (5) Policy differences……mainly terrorism and immigration

-10

-5

0

5

10

15

20

0

10

20

30

40

50

60

70

80

90

100

% of registered voters saying each is "very important" to their vote

Clinton supporters

Trump supporters

Difference (Trump - Clinton) [rhs]

• Trump supporters are more concerned about terrorism, and immigration and also the economy

• Clinton supporters are more concerned about Health care• Both are concerned about gun policy – but probably for different reasons

Source: Pew Centre for Research

27

Origins of US immigrant population

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

South Asia East Asia Caribbean Middle East Sub Saharan

Africa

Central

America

Canada South America Oceania Europe Mexico

2000 2010 2013

Millions

• Most of the invective against immigration has been levelled at Mexico, and this is the single biggest source of US immigrant population

• But it has been drifting lower in recent years…• …and Asia (especially China) has been catching up fast

US Migrant population

Source: Census Bureau

US ElectionSwinging for victory

29

Swing states – GDP growth, median incomes

-15

-10

-5

0

5

10

% deviation

-20

-15

-10

-5

0

5

10

% deviation

• If your state GDP growth has been below the national average – could this make you more likely to be a Trump supporter?

• If so, Nevada, Florida and Michigan could fall to Trump…

• …whereas Colorado, Utah and Wisconsin should be picked up by Clinton

GDP Median incomes

• Median incomes mirror some of the GDP story…

• …but Colorado and Utah shift to the Trump side…

• …Iowa, New Hampshire, and North Carolina look better for Clinton on this measure

Source: Macrobond Source: Macrobond

30

Swing states – unemployment, house prices

-2,5

-2

-1,5

-1

-0,5

0

0,5

1

1,5

2

% deviation

-20

-10

0

10

20

30

40

% deviation

Unemployment change House price growth

• If unemployment has fallen more than the national average, will you be less angry? And less likely to vote for Trump?

• If so, Clinton should so better in New Hampshire, Colorado, Utah, Virginia and Iowa

• But Trump will likely pick up support in North Carolina, Ohio and Nevada

• The principle asset of most households is the family home…

• …so disenchantment and Trump support could be highest where home prices have risen least…

• That includes New Hampshire….• …but not most of the rest, including Colorado,

Iowa, and Michigan

Source: Macrobond Source: Macrobond

31

Swing states – ethnicities, income ratio of top 1%:99%

0

10

20

30

40

50

60

70

80

90

100

% Non-hispanic white

0

5

10

15

20

25

30

35

40

45

Ratio

Ethnic diversity

• Our thesis is that the least ethnically diverse states will tend to be the least ethnically tolerant…

• …and there is also a “batting average” effect of voters

• They may be more likely to support Trump….• …New Hampshire, Iowa, Wisconsin…• …on the other side, Nevada, Florida and Virginia

might be more disposed towards Clinton

• If inequality means a greater sense of injustice / unfairness, then the most unequal states might prefer Trump’s message against the elite….

• …such as Nevada, Florida…• …others are likely to have less of a grudge

Income inequality

Source: Census Bureau Source: Census Bureau

32

Swing states – age: most elderly and youngest

30

32

34

36

38

40

42

44

46

years

30

32

34

36

38

40

42

44

46

years

• States with a higher median population age could be more likely to support Trump and the younger ones to support Clinton…

• If so, of the swing states we identified, New Hampshire, Virginia, Florida, Pennsylvania, Michigan, and Ohio could go for Trump…

• Clinton could take Colorado and Utah

Median population age – oldest 15 states

Median population age – youngest 15 states

Source: Census Bureau Source: Census Bureau

33

Swing states – manufacturing (% of employment)

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

• All states have seen manufacturing jobs fall as a % of total employment since 1970…

• …but the ones that have seen the biggest falls may be more likely to vote Trump…

• …if so, this should provide support for Trump from North Carolina, New Hampshire, Ohio, and Pennsylvania

• But Clinton may do better where this decline has been smallest…

• …Nevada is one of the few swing states that makes it into this group

Fall in share of mfg jobs as % of total Fall in share of mfg jobs as % of total

Source: Macrobond Source: Macrobond

34

Voting indicators

Marker Favours Trump Favours Clinton

GDP NV, LF, MI CO, WI

Median incomes NV, CO, UT, FL, MI UT, NH, WI

Unemployment NC, OH, NV NH, CO, UT, VI, IO

Manufacturing NC, NH, OH, PN NV, IO

House prices NH CO, IO, UT, VI

Ethnicity NH, IO, WI, OH NV, FL, NC, VI

Inequality NV, FL WI, UT, NH, VI, NC

Age VT, NH, WV, FL, PN, MI, OH CO, UT

Appear three times or more NV, FL, OH, NH, NC CO, WI, UT, NH, IO, VI

Electoral college votes 72 (68) 45 (41)

Source: ING

• We take states that show one of the candidates “markers” three times or more, and “give” the electoral college votes to that state

• This gives more states to Clinton, but more votes to Trump• Given the better starting position for Clinton in terms of “safe” states, this remains too

close to call

35

Swing Synthesis

• If (and it is a BIG IF) the states follow our swing analysis, Trump will win fewer states, but get more electoral college votes.

• But If Clinton takes the “toss-ups”, she should win overall

0 20 40 60 80 100 120 140 160

Trump Toss-ups Clinton

Electoral votes for Swing States

Electoral college votes determined from state analysis

Source: ING

-10

-5

0

5

10

15

Mar 16 May 16 Jul 16 Sep 16

New Hampshire Ohio Florida

Wisconsin Colorado Virginia

Pennsylvania North Carolina Iowa

36

How the Swing States are shaping up

• Polls put Clinton in the lead in all but Iowa• But the leads in some states are not big…Ohio for example• North Carolina hangs in the balance, and Florida has been flipping to one side and

then the other…• …the recent direction of travel has been more favourable to Clinton, but…• …this is all to play for still

-4

-2

0

2

4

6

8

10

12

Net favourability %

Leaning Cinton

Leaning Trump

Net favourability %

Leaning Cinton

Leaning Trump

As at 10/10/2016

Source: Real Clear Politics Source: Real Clear Politics

As at 10/10/2016 (Clinton -Trump

US ElectionPolicy differences, markets and the

economy

38

Marginal tax rates under Trump / Clinton

• There isn’t much hard data to go on in terms of policies• But there is on tax• Trump will take a lot of people out of tax altogether, and cut marginal tax rates for all• Clinton will raise tax rates for the rich

• Caveat: The President has to get Congressional approval to pass these laws• Not guaranteed

Source: CRFB

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

$0

Current Law

Clinton's Tax Plan

Trump's Tax Plan

$100k $200k $300k $500k$400k $5M $5.05M

39

Clinton vs Trump – impact of income tax changes

-9

-7

-5

-3

-1

1

3

5

Lowest

quintle

Second

quintile

Middle

quintile

Fourth

quintile

Top quintile All 80-90 90-95 95-99 Top 1% Top 0.1%

% c

ha

ng

e in

aft

er

tax

in

com

e 20172025

0

5

10

15

20

Lowest

quintle

Second

quintile

Middle

quintile

Fourth

quintile

Top quintile All 80-90 90-95 95-99 Top 1% Top 0.1%

% c

ha

ng

e in

aft

er

tax

in

com

e

20172025

Trump

Clinton

• Clinton’s tax plans appear to result in decreased or unchanged after-tax income for every quintile, with the top percentile groups facing the biggest income losses

• In contrast, Trump’s plans boost post-tax incomes for every group. The top 1% and 0.1% are the greatest beneficiaries resulting from his tax policies

Source: Urban-Brookings Tax Policy Centre

40

Clinton vs Trump – Effect on Debt

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Clinton Trump

Revenue Spending Interest Costs

-12

-10

-8

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-2

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2

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12

Clinton Trump

Debt

• Clinton is the “Continuity candidate”, with modestly higher spending proposals, largely, though not totally offset by some higher tax revenues from the rich and businesses…

• Trump breaks the mould, with massive cuts to taxes at all income levels, almost no spending proposals, and most of his increased outlays will come from higher interest costs

• The result is that Clinton’s policies make almost no difference to deficit projections based on current law

• Trump sees a much bigger increase in debt over the next ten years

$tr $trRevenues, spending and interest costs Impact on national debt over 10 Years

Source: CRFB Source: CRFB

41

Clinton vs Trump – Debt Ranges - estimates

60

70

80

90

100

110

120

130

140

150

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

% o

f G

DP

Clinton Range Trump Range

Clinton Central Estimate Current Law

Trump Central Estimate

Projections on national debt ratio - central estimate and ranges

• Given incomplete, and in some cases contradictory statements, these estimates are not to be taken too literally…

• …they also may inadequately incorporate any GDP growth effects…• …even so, Trump has a much bigger impact on national debt than Clinton

Source: CRFB

42

Key quotes on policies

Topic Trump ClintonTax reform “Simplify taxes for everyone and streamline

deductions… biggest reform since Reagan”“Lower corporate tax to 15% to keep jobs here”“We will lower income taxes for everyone in a dramatic reduction”

“Restore basic fairness to our tax code. Ensure the wealthiest Americans don’t pay less than hard working families”“Restore the estate tax and implement Buffet Rule”

Trade “Cut a better deal with China that helps American workers”“Renegotiate NAFTA and withdraw from TPP”

“Pursue smarter, fairer, tougher trade policies that put US job creation first – oppose deals like TPP”“Get tough on nations like China”

Debt “I love debt. I’m the king of debt” “Our rising debt levels pose a national security threat, undermining our capacity to act in our own interests and sending a message of international weakness”

Fed “I agree with the Fed keeping rates low… What do we do with all the money we owe when rates go up?”Although… “Yellen should raise rates – she’s not doing it because Obama doesn’t want her too”

“Shift the balance of power at the Fed away from private banks in favour of democratic accountability”

Deficit “We will attack our debt and deficit by vigorously eliminating waste, fraud and abuse in the Federal government. Closing the deficit and reducing our debt will mean China cannot blackmail us”

“We can afford to pay for ambitious, progressive investments in well paying jobs and other measures to boost growth and reduce inequality. These extra revenues will come from large corporations paying their fair share”

Dollar “I love the concept of a strong dollar, but when you look at the havoc it causes… I have friends in China and all they does is watch the dollar – they love to see it go up. So actually, it sounds better to have a strong dollar than it really is”

No comments on the dollar so far…

Source: Donald J Trump, Hilary Clinton, Wall Street Journal, Huffington Post

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Trump major proposals

Initiative Costs/savings $tr (central estimate)Repeal Affordable Care Act 0.5

Deductions for health insurance 0.1

Reduce prescription drug costs -0.05

Block grant medicaid -0.5

Reduce individual income taxes 6.5

Reform business / corporate taxes 2.55

Repeal estate tax 0.2

Subtotal tax and health policies $9.30

Reform veterans affairs 0.5

Reduce illegal immigration 0.05

Net interest costs $1.7

Budgetary impact $11.50

Source: CRFB

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Clinton major proposals

Initiative 10Y costs/savings $trNew college compact 0.35

Expand Affordable Care Act 0.3

Repeal Cadillac tax on high cost health insurance plans 0.1

Expand early childhood education 0.1

Increase infrastructure spending 0.3

Expand family paid leave 0.35

Invest in energy and research 0.1

Support economic revitalisation and increase veterans funding 0.15

Subtotal – costs $1.75

Limit tax breaks to the 28% bracket -0.4

Reform capital gains tax -0.1

Enact minimum tax, surtax and other increases on high earners -0.4

Increase various business taxes -0.15

Impose fee on financial institutions -0.1

Reduce prescription drug costs -0.25

Immigration reform -0.1

Subtotal – savings -$1.60

Net interest 0.05

Budgetary impact $0.20

Source: Hilary Clinton Campaign Website

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Impact (+ or -)of Trump victory relative to ClintonCountry, region or asset class

Market reaction (+’ve or –’ve for risk assets)

Additional comments

Europe - for risk assets, + for currency, bunds Europe overwhelmingly sees a Trump victory as a threat to global markets according to Pew survey, and ML Global Investor surveys show Trump presidency seen as greatest risk to markets along with EU disintegration

Asia - for assets of whole region in relation to economic proximity to China

Potentially huge trade war if Trump levies tariffs. But some scope for political tension to improve if Trump took a softer stance on China’s territorial claims –viewing them as more of a local and not global dispute – could trade this off against trade threats.

Latam - for Mexico Mexico is the real concern here, with the auto sector and obvious political target for tariffs

Russia As one of the bigger EM outperformers in terms of local FX debt, Russia would likely be hit by global risk aversion,. But the political climate between Russia and the US might improve under Trump

Poland Less exposed to hot money build up than other CEE countries. Substantial worry about US commitment to NATO under Trump Presidency

Hungary Assets would be hurt by global risk aversion, but Orban gov’t might be more sympathetic to a Trump Presidency

Romania - but greater risk at longer end of bond market where ownership concentrated in foreign hands. NBR to stabilise FX volatility

Concern that pressure to boost military spending within NATO would stretch local deficit

Turkey Highly vulnerable in the short term to international risk aversion. View Clinton’s stance as more sympathetic to Ankara with regard to Syria –consensus building , though Trump might adopt a more diplomatic tone if he wished for Ankara support for military action against ISIL

$-Bloc Australia at risk due to proximity economically to China, and Canada from any threat to NAFTA

Oil Short term +, longer term – Weaker USD the main short term driver for oil, but greater US production in the longer term would weigh on prices, subject to any increase in instability in the Middle East in the event of more US military engagement in the regionSource: ING

46

Trade - Is China a currency manipulator?

65

70

75

80

85

90

95

100

105

110

115

120

125

130

135

jan 10 jan 11 jan 12 jan 13 jan 14 jan 15 jan 16

AUD CAD CNY EUR JPY KRW GBP USD

Overvalued

Undervalued

• Trump has said he will declare China a “policy manipulator” on “day 1”. • But is it a currency manipulator? • The IMF said in 2015 that the CNY was about “fairly valued”• Looking at real effective exchange rates (BIS figures) the CNY actually looks too strong• Trump has threatened 45% tariffs on China (35% on Mexico)

Source: Bank for International Settlements

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2016 US Presidential Elections: Global FX Impact

• Our ING US Election Vulnerability Scorecard shows how currencies will trade if markets get

unsettled by the prospect of a Trump Presidency

• Countries with strong trade & financial ties to the US (i.e. Mexico & Canada) or small open

economies will likely suffer from heightened fears over global trade/protectionism

• European FX will act as a relative safe haven and indirectly benefitting from a higher

EUR/USD

ING US Presidential Election Vulnerability Scorecard

The ING US Presidential Election Scorecard is the sum of the relative z-scores for the four sets of variables depicting the various channels through which the event can spillover into FX markets. Results should be interpreted on a relative basis.

-1,6

-1,2

-0,8

-0,4

0

0,4

0,8

1,2

1,6

MXN CAD HKD SGD COP TWD ZAR MYR CLP KRW RUB AUD BRL NOK ILS THB PHP INR HUF TRY SEK NZD PLN IDR EUR CZK RON CHF JPY

Financial Market Channel

Global Risk Channel

Protectionism Channel

Bilateral Trade Channel

US Presidential Election Vulnerability Score

Least vulnerable = Top-performing currencies in the event of a risk-off US Presidential

Election event

Most vulnerable = Worst-performing currencies in the event of a risk-off US

Presidential Election event

Source: ING

48

The road to Government Impasse?

Tax cuts Trade tariffs

Minor changes to spending and tax

Block tax cuts?

Block trade ideas?

Block everything?

Budget crisis?

Government shutdown?

49

Market and economic scenarios

Scenario 1 Scenario 2 Scenario 3 Scenario 4

Watered down Trump Clinton WYSIWYG Unfettered Trump Clinton – Free trader atheart

GDP short term= = - =

GDP long term+ = --- +

Inflation short term= = +++ =

Inflation long term+ = --- =

Bond yields short term- + --- +

Bond yields long term+ = --- =

USD short term- + -- +

USD long term= = --- +

Risk assets short term-- + --- ++

Risk assets long term+ - --- +

Source: ING

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Disclosures

50