Viewpoints

Super Tuesday: What Happened, What’s Next

Libby Cantrill, head of public policy for PIMCO, shares her views on Super Tuesday’s results, market volatility and trade relations between the U.S. and China.

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Libby Cantrill: Vice President Joe Biden had a fantastic night on Super Tuesday. He really needed a fantastic night. If he can continue with this type of momentum, he absolutely could be the nominee.

But a lot can change over the next month. If this momentum carries through to the contests in the middle of March, especially Florida and Georgia – Florida’s on March 17th, Georgia’s on March 24th – then he could be, you know, the frontrunner and the clear nominee by the end of March. However, if Bernie Sanders ends up reviving and doing better in those contests than is expected, we may actually get a brokered convention, a dynamic where we get to the convention in July and there is no clear nominee, if no one candidate has a simple majority of delegates, then it becomes to the sort of brokered convention context where all of the delegates then become released from the candidates that they were previously supporting and then they become kind of free agents.

This hasn’t happened since 1952 in our primary process. So, really unprecedented, but would likely be bad for democratic unity, bad for the Democratic party just in general and probably good for President Trump.

The composition of Congress will really matter. This is something that I really emphasize when we talk to our investment committee, because while understandably the focus is on the race for the White House, actually the composition of Congress may be just as important. Whomever is in the White House will need a cooperative Congress to advance their legislative agenda.

435 members in the House of Representatives are up for reelection in 2020 and a third of the 100 Senators are also up for reelection. Democrats now control the House; Republicans control the Senate.

If there’s a Democratic nominee like Joe Biden and if he were to win the White House, then probably the Senate flips to Democratic control and that would help him in terms of passing his legislative agenda. But, there’s also a scenario where a Democrat wins the White House and you still have a Republican Senate and then you basically get more gridlock.

So, from a markets and investor perspective, we’re just encouraging folks to pay attention to those congressional races, especially in the Senate. Three in particular, Colorado, Maine, and Arizona are going to be very important.

The subject of market volatility is very relevant right now and many people are wondering what can President Trump actually do to stimulate the economy? And the reality is without Congress not very much.

Congress is the entity that authorizes new spending. They would be the entity that would authorize tax cuts and that just doesn’t look very likely as of now.

Now, if we get into sort of a recessionary type scenario, which is not necessarily PIMCO’s base case, then never say never. But as of now, what I think we’ll continue to see is sort of, you know, $10 billion here, $10 billion there, but nothing really that fulsome in terms of stimulating the economy, which will probably frustrate President Trump, but it’s just the realities of balanced government.

As it relates to China and the phase one trade deal, obviously we now have a truce between the United States and China, but it’s predicated on China buying quite a lot of US agricultural and other goods.

Now, because of the weakness in their own economy, it looks very unlikely that they’re going to be able to honor those commitments. And then, it’s a question of whether President Trump thinks it’s in his own political interest to increase the China kind of hawkish rhetoric going into the election or not.

I think you could see a scenario if he’s running against Joe Biden and he really wants to carve out this issue in terms of being sort of a China hawk and holding China account, that you could once again hear that jawboning of President Trump against China and you could even see escalation again. So, that’s something, a risk that we’re certainly monitoring over the cyclical timeframe.

Recorded 4 March 2020

Disclosure


All investments contain risk and may lose value. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963) and PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch and Spanish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862.This publication has been prepared without taking into account the objectives, financial situation or needs of investors. 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CMR2020-0303-441536

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