Markets will be waiting with bated breath on Tuesday as voters in the US state of Georgia head to the polls for runoff elections that could decide the future of any agenda set out by soon-to-be president Joe Biden.


Georgian voters will be selecting who they want to fill the state’s two Senate seats after the first round of voting in November failed to deliver a candidate with over 50% of the vote, as per the state’s election rules.


The poll will see Democrat candidates Jon Ossoff and Raphael Warnock face off against Republican incumbents David Perdue and Kelly Loeffler respectively. If the two Democrats manage to secure both seats, it will leave the US Senate evenly split with 50 Democrat Senators and 50 Republicans.


However, such an outcome will effectively hand Democrats control of the chamber, as per the US constitution the vice-president, which will be Democrat Kamala Harris following Biden’s inauguration on January 20, serves as the tie-breaker on any issue in which the Senate finds itself equally divided.


Analysts at ING have highlighted that polling for the two races are “very narrowly favouring Democrat victory” in the state, although the margin of error in the data could still mean the race is effectively neck and neck.


“The outcomes in Georgia will have massive implications for Joe Biden’s legislative ambitions. Should the Democrats win both seats they will have control of the Senate as well as the House, thereby giving Joe Biden the scope to push ahead with a broad package of policies aimed at boosting jobs, investment and green energy in the US economy”, the bank said, adding that if the Republicans pull off even a single victory it will allow them to retain control of the chamber and “stall and limit” Biden’s legislative plans, particularly those concerning higher corporate taxes and wealthy households.


Democrat victory could see equities under pressure, but Republican win may stall economic recovery


A Democrat victory in both Senate races, and the resultant control of both Congress and the presidency, will allow Biden to enact his agenda more easily, with the prospect of higher corporate taxes likely to pressure company earnings and share prices in 2021, although this could be offset by the probability of bigger and more aggressive stimulus measures to boost the US economy out of its pandemic slump.


This strategy may also have implications for currency markets, as higher spending and borrowing by the US is likely to pressure the dollar, with AJ Bell’s Russ Mould adding that a bigger government balance sheet also raises the spectre of inflation as investors “ponder the possible combination of a successful vaccination programme, ongoing fiscal and monetary stimulus and a post-virus economic upturn”.


However, at the opposite end of the scale, a Republican victory could see any economic rebound held back by the GOP’s distaste for higher government spending. Despite this, ING expects that growth will “still be very robust in under this scenario” as it will reduce the fear of “aggressive tax hikes” and move US government finances “onto a more solid footing”.


Will Georgia matter at all?


Meanwhile, some analysts are relatively unconcerned with the effects of the Georgia Senate races on the market, turning instead to geopolitical issues more removed from domestic US politics.


Among these is the prospect of warmer diplomatic and trade relations between the US and its allies following the departure of Donald Trump, which may reduce the risk of supply chain disruptions in the short term relative to the situation that has endured for the last four years.


Meanwhile, the rollout of COVID-19 vaccines continues apace in countries around the world, raising the prospect of a return to relative normalcy by the summer alongside a full re-opening of the global economy and a surge in growth amid a new ‘roaring 20’s’.

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