With the U.S. presidential race dominating the headlines, Bay Street economists are puzzling out the implications of the election’s results for markets and the economy.

Commenting on the economic platforms of the Democrats and the Republicans, CIBC World Markets says, “While both profess a desire for fiscal rectitude, independent analyses have shown that neither platform spells out a program that will take the deficit lower, once realistic assumptions for background conditions are applied.”

“If these platforms, then, are simply nice works of fiction, what markets have to assess is where the truth will lie post-election. On that score, there is greater reason to suspect a bit more fiscal progress, and a brighter look for the Treasuries market longer term, under Kerry and a more Democratic-tilted Congress, than under the current administration,” CIBC suggests.

CIBC WM says that Bush’s true colors on fiscal issues are already fairly apparent. “Forced to choose between deficit reduction and tax cuts, deficit reduction and defense spending, deficit reduction and just about anything else, Bush opts to ignore the deficit,” CIBC WM notes. “As for Kerry, he, like Democrats on capital hill, have hidden their real views on taxes until after election.”

Notwithstanding Bush’s weakness on deficits, BMO Nesbitt Burns says that equity markets would prefer Bush because, “Bush’s proposal to make recent tax cuts permanent – particularly those related to higher incomes, capital gains and dividends – and to expand tax-sheltered savings vehicles while introducing private social security accounts, all bode well for the demand for equity investments. Meanwhile, Kerry has proposed partial rollbacks of the above-mentioned tax cuts.”

“Equity markets won’t cheer a John Kerry victory, given risks to tax preferences on dividends,” CIBC WM concedes. “But if Treasury bond holders are looking for some hope on the deficit, Kerry is their man, even if he won’t admit it just yet,” it concludes.

BMO Nesbitt reports that a poll released this week said that 56% of Canadians favoured Kerry, while only 19% favoured Bush and 25% had no view. “However, it is not at all obvious that Kerry would be more positive for Canada despite his personal popularity,” it says. “Consider the most critical bilateral issue: trade. With Bush, Canada gets the status quo, which includes irritants such as softwood lumber and live cattle. However, a Kerry Administration might have more protectionist tendencies.” It warns that Kerry could attack outsourcing, which benefits Canada, and that he would promote importation of prescription drugs from Canada, which could spell higher Canadian prices, and Kerry has threatened to stop Toronto’s trash shipments to Michigan. “So, is Bush or Kerry better for Canada?” BMO asks. “It could be a case of ‘better the dubya you know …’ ”