What effects may the US elections have on Europe?

In the next five months, the US presidential elections are scheduled to take place, and European firms, investors, and politicians will be keenly observing the possible results.

The EU's greatest commercial partner, the US, is vital to its commerce, particularly in light of the US's growing importance as a source of energy after Russia's invasion of Ukraine.

Investor attention is mostly focused on trade and defence, according to a report from UBS analysts on Tuesday. They believe that big new trade agreements are unlikely, come election day or not. Rather, under both candidates, protectionist policies like trade tariffs are anticipated to have minimal effects over the long run.

Europe has been spending more on defence in order to fulfil its NATO obligations, but financial restraints might provide difficulties. Financial pressures may worsen if Europe were to provide Ukraine with additional resources as a result of the US's diminished backing, experts say.

Expected to provide stability and predictability, a Biden government may be less upsetting to investors. On the other hand, a Trump administration may increase uncertainty, which would have conflicting effects on investors.

Meanwhile, Trump's trade policies are probably going to be more tariff-heavy and less regulation-focused, which would help industries like energy and banking but might hurt European banks with a local emphasis.

Spending more on the military in Europe may also help certain companies. But according to experts, Biden's emphasis on climate policies might help Europe's Greentech leaders, while Trump's lack of attention on sustainability would hurt the continent's industrial and utility industries.

A Biden victory is perceived by the financial markets as better for fixed income because of anticipated rate reductions and decreased bond rates. However, a Trump win may lead to rate volatility and weaken confidence in fixed income markets.

Under Trump, doubts over the independence of the US Federal Reserve may surface, while many think substantial changes in who is in charge of monetary policy are unlikely.

A "red sweep" scenario, in which Republicans capture the Senate and the House and Trump wins the presidency, has been given a 45% chance by analysts. With a divided Congress, there is a 30% chance that Biden will win.

(Sources: investing.com, reuters.com)