Even with the White House pushing a new US$1.8 trillion stimulus plan, it’s unclear if anything will get done before the presidential election. The Senate is opposed to an expansive program, and Majority Leader Mitch McConnell said his priority is the Supreme Court nomination, not fiscal aid.

Despite the uncertain timing, investors are betting that more stimulus will come eventually. After all, keeping the economy growing is going to be a priority for whoever wins the election on Nov. 3. Moreover, with the Democrat Joe Biden widening his lead in polls over President Donald Trump, investors across asset classes are starting to prepare for a potential Democratic sweep, which could bring even bigger government spending in early 2021, a less contentious trade policy and a focus on infrastructure and clean energy.

• Yield curve: The difference between five-year and three-year bond yields steepened 11 bps over the past two weeks. The ICE BofA’s Move Index of Treasury volatility index has lifted from rock bottom. Both reflect expectations that higher spending under a Biden administration and Democratic Congress is likely to boost inflation, increase debt issuance and push up the time frame for the Federal Reserve to raise interest rates

• Stocks: The outperformance of renewable energy shares may reflect expectations of a shift in policy under a Biden presidency toward cleaner energy. The VIX volatility futures fell this week, suggesting investors are expecting a less contentious election

• Currencies –- The dollar fell across the board as more fiscal spending will widen the U.S.’s trade and budget deficits. The Bloomberg JPMorgan Asia Dollar Index jumped to the highest since April 2019, led by an advance in the Chinese yuan. Biden is seen as likely to be less confrontational than Trump on trade
• Credit –- The lowest-quality CCC-rated stocks outperformed, reflecting a declining risk premium and expectations of stimulus