Second US presidential debate: Trump ducks fatal blow

Ryan Boothroyd from Henderson’s Multi-Asset Team discusses the key takeaways from the second US presidential debate.

Coming into the second presidential debate, Hillary Clinton’s main objective was to do no harm. She is leading by over 5 percentage points in opinion polls and comments released in recent days continued to strengthen her narrative that Donald Trump lacks the temperament required to be President of the United States. Her objective was largely achieved. In a low-quality debate, polling showed that the majority of viewers thought Clinton was the victor, although the margin of victory was tighter than in the first debate. Betting markets were also relatively sanguine, barely moving from a 75% chance of a Clinton presidency.

Notwithstanding this, the debate was by no means a disaster for Donald Trump. He effectively outlined the classic Republican talking points on Obamacare and avoided Clinton’s attempts to land a fatal blow. Furthermore, he managed to regain his composure after a frenetic first 30 minutes. That said, the debate was not without controversy. Trump made a number of ill-considered comments such as suggesting that he would jail Hillary Clinton if elected and took a diametrically opposite view to his Vice Presidential candidate Mike Pence on foreign policy. Ultimately, post-debate polls indicate that Trump exceeded expectations, but arguably he was starting from a low base.

All in all, our outlook is little changed. There were few substantive policy discussions and it seems unlikely that the debate will be sufficient to offset the recent news-flow surrounding Trump’s 2005 “locker-room” audio. At best, his above-expectations performance may delay the desertion of his few remaining high profile Republican backers. Financial markets interpreted the debate in neutral to positive fashion, with the few ‘Trump’ trades (such as US dollar/Mexican peso) showing some signs of strength. We continue to avoid taking significant bets on the outcome of the election given the difficulty in isolating political drivers from wider market trends. However, given the most recent polling, a Clinton landslide is now as likely as a Trump victory, which may have important implications for the down-ballot elections (ie, Senate, House, and local) and the likelihood of fiscal stimulus. We will continue to monitor the polls over the coming week to see the aggregate impact of yet another tumultuous weekend.