In the next three weeks, "Trump trade" is crucial

The situation of the US election is affecting the nerves of the global market. Last week, Biden performed poorly in the TV debate, the "Trump trade" resurfaced, the US dollar strengthened, the US bond curve steepened, and US stocks in the banking, healthcare, and energy sectors rose.

What are the chances of Biden "dropping out"? Who is the preferred alternative? Who will be nominated as Trump's "deputy"?

In its latest report on July 3rd, Morgan Stanley analyzed these questions, pointing out that the next three weeks are crucial. If Biden's support in swing states significantly declines during this period, it may change his decision to continue running.

Morgan Stanley stated that if Biden is forced to "step aside," current Vice President Kamala Harris (Chinese name: 贺锦丽) will become the Democratic Party's "Plan B." Currently, Harris' betting odds have surged, and she may showcase herself more in campaign activities before the vice presidential debates on July 23rd or August 13th.

Will Biden Drop Out? Key Swing States Are Crucial

Biden's poor performance in the first presidential candidate debate has sparked speculation about him dropping out of the race.

Morgan Stanley pointed out that there is currently no sign of Biden withdrawing from the election. It is only possible if Biden's poll numbers in key swing states deteriorate significantly.

• There is currently no sign of Biden withdrawing from the presidential race, and there is no formal mechanism to remove him as the Democratic Party candidate. Unless he decides to withdraw himself, there is no formal mechanism to revoke Biden's nomination.

• Biden's nomination is almost certain, with over 3900 out of about 4000 pledged delegates still supporting him. In the first round of voting to secure the Democratic nomination, a candidate only needs a simple majority (i.e., over 2000 delegates). There are reports that to dispel rumors of a replacement, the Democratic Party is considering nominating Biden as the party's presidential candidate early, with Ohio requiring candidates to be nominated in early August.

Morgan Stanley indicated that Biden's nomination may be shaken in the first two scenarios, while the third could lead to his withdrawal:

1. Health Condition: First Lady Jill Biden is very committed to her husband's campaign and is unlikely to intervene. However, if his health deteriorates, she may persuade him to consider stepping down.

2. Democratic Party Members' Opinions: If Senate Majority Leader Chuck Schumer or other senior Democratic leaders publicly call for his resignation, it would be a strong signal that the Democratic Party wants to change the candidate.

3. Swing State Support: Biden's withdrawal is only possible if his poll numbers in key swing states deteriorate significantly to the point where he is seen as at a disadvantage in congressional elections.

The key issue is whether this debate has changed the minds of undecided voters in the six key swing states (Michigan, Wisconsin, Pennsylvania, Arizona, Georgia, and Nevada) that have yet to be decided. Morgan Stanley stated:

If Biden's candidacy is seen as damaging to the Democratic Party's chances, party leaders may change their support for him, making the next three weeks crucial.

If Biden falls behind Trump by 8-10% in key swing states such as Michigan, Wisconsin, and Pennsylvania in the next three weeks, he will face immense pressure to withdraw. Currently, Trump leads in swing states, with a lead ranging from a tie to 5.6%.

Over 90% of voters have already made their decision, with only around 10% of voters still undecided, the lowest level in history. The margin of error in swing state polls is estimated to be as high as 9%, and it will still be as high as 7% before the nomination. Only in the 1-3 months leading up to the election will the margin of error in swing state polls narrow to 1-3%.

Currently, Biden's campaign team plans to increase surrogate speakers, including the Clintons, the Obamas, the First Lady, and Vice President Harris, to boost Biden's support in key swing states and shift voter focus away from Biden's age and debate performance.

If Biden Steps Aside, Who Would Be the Top Replacement?

Although highly unlikely, if Biden fails to win a simple majority in the first round of voting, the most likely replacement under the Democratic Party's "Plan B" would be Vice President Kamala Harris. JP Morgan stated:

The Democratic Party is likely to choose Kamala Harris. Although Harris has low national support rates, she has favorable polling among certain key demographics, with an 84% support rate within the Democratic Party, 70% support among black voters, and higher support among young voters compared to Biden.

Currently, Kamala Harris' betting odds are soaring, and she may become more prominent in campaign activities leading up to the vice presidential debates on July 23rd or August 13th. This will provide voters with more opportunities to learn about Harris and assess her presidential qualifications, which has become more crucial following Biden's poor debate performance.

Apart from Harris, there may be many other candidates considering running, including California Governor Gavin Newsom, Michigan Governor Gretchen Whitmer, Illinois Governor JB Pritzker, and Transportation Secretary Pete Buttigieg.

It is worth noting that Democratic Party leaders will do everything possible to avoid internal divisions, as this would increase the likelihood of Trump returning to the White House. The 1968 Republican National Convention was the most divisive in American history, where Hubert Humphrey won the nomination but lost to Nixon in the general election. In addition, some analysts pointed out that if Biden wins re-election, Harris may also become president at some point in the next four years. In the event of Biden winning the election, there is a 65% chance that he will resign early in his second term, well before the midterm elections, making Harris the next president.

Will Trump's Support within the Party Increase? Who Will Be Nominated as "Vice President"?

While Biden is working to maintain support in swing states, Trump's support within the Republican Party may further increase, and the nomination of Trump's "vice president" has also become a recent focus.

J.P. Morgan believes that the Republican National Convention is likely carefully planned to show that Trump is the leader of the Republican Party and will gain more support from traditional party groups. Traditional Republicans will show a reconciliatory attitude towards Trump, and black and Latino supporters will play a prominent role.

Furthermore, Trump's vice presidential candidate may be announced in the 10 days leading up to the start of the convention on July 15th. Trump has stated that he has chosen his "running mate," both of whom participated in debates. Potential vice presidential candidates who participated in the debates include JD Vance (Ohio), Marco Rubio (Florida), Tim Cotton (Arkansas), among others.

Analysts believe that JD Vance is the leading candidate. He is a bestselling author and rising political star who has had a 180-degree turnaround in his attitude towards Trump. In 2016, Vance heavily criticized Trump as a "complete charlatan," but during this year's Republican primaries, Vance said Trump is the "greatest president he has ever encountered."

Analysts view Vance as a representative of the new generation of conservatives in the United States. If he becomes Trump's running mate, he may inject youthful energy into this "old-fashioned" presidential election, and his future debates with current Vice President Harris will be quite intriguing.

"Third-party Candidates" Remain a Threat

Independent candidate Robert F. Kennedy remains an unknown threat to both candidates, and opinions vary on who his candidacy would harm more.

As RFK has not received 271 electoral votes or garnered over 15% support in four national polls, he has not been invited to participate in debates.

RFK held his own remote shadow debate in Los Angeles, attracting 3.2 million viewers. However, there is uncertainty about his ability to secure votes in swing states, and his funding mainly comes from the Republican Party.

Opinions on whether RFK would draw more votes from Biden or Trump remain mixed, but it is generally believed that his overall impact is minimal, with higher support among Trump supporters