Whilst we may not be in a state of absolute knowing as yet, the likelihood of a new President in the United States is seemingly obvious, as we await the states which are proving slow to count. Whilst the markets were pricing in a Biden victory, it wasn't all plain sailing on election day, as early in the US evening Trump took a lead in those fast counting states taking stocks off and surging the US Dollar from a “risk” perspective. This wasn't what anyone was expecting and took the world off guard. The Trump victory in Florida, his self declared home state really started to solidify the possibility of him remaining in power.
Whilst this was a surprise, in retrospect it really shouldn't have been, as what was playing out was the fast counting of those who visited the polls, with Biden faring better from postal vote the tortoise and hare scenario should have been expected as biden clawed back the lead to surpass on Wednesday. So for now with Biden just one state away from what seems an obvious victory, the markets have swung back and seem to be on a positive footing, clawing back the painful losses of last week. Despite legal challenges and accusations of cheating by Trump, the nature of these baseless accusations has investors happy to ignore them and the sector which had been reducing positions into the volatility event, seemed happy to reinstate positions with FAANG again being flavour of the month.
Whilst the blue wave went off the table as Trump gained the early lead it remains not impossible to be achieved but unlikely, benefiting healthcare and tech stocks. With Biden progressing in vote and the outlying states nearing completion of count, we would expect to know the ultimate result in the next 24 hours with the Senate result expected to take a bit longer. As previously stated the markets have recaptured the losses made last week, but can they push on. This we expect to come down to whether anyone takes Trump's claim seriously, at this stage the manner of which they are being delivered and lack of meaningful evidence will stand against him with markets completely ignoring his claims last night and marching on 6-7% up in the major indices.
IF Biden wins, a lot will come down to his ability to act via the House and Senate, its felt he will certainly be more proactive on the wearing of masks but with Trump supporters already aggrieved at the election outcome, there are fears this will lead to civil unrest stateside and that is a real concern. But, with the US posting 100,000 new virus cases just yesterday action is needed to thwart lockdown. If elected, Biden will also need to quickly implement an aid package to get money to those who are suffering economically due to the virus with mortgage delinquencies on the increase. Last night brought the interest rate meeting from Jerome Powells Federal Reserve, and with Presidential leadership unknown it was no surprise we so no shift in policy with just 7 words changed in the statement. The Fed did signal that as the virus grips again more aid will be needed into the years end. With Fed aid more aimed at companies than the individual, the incoming President will have to act fast to keep the public and markets happy.
In the currency markets the winners this week were the currencies in China, Canada and Mexico, with Biden expected to take a more global approach to leadership and amid the falling US Dollar environment these currencies thrived. The same can be said for the British Pound and the Euro which both had strong weeks against the greenback even despite the escalation of the virus in their territories leading now to significant pressure on hospitals and country wide lockdowns being introduced into early December. With Brexit still being very much up in the air despite the progress on fishing rights, Barnier commented yesterday that there were still significant concerns that a deal can be reached by mid-month. The outcome of the US election also places pressure on the UK with Biden having previously signalled trepidation on a deal with the UK due to the handling of the Brexit negotiations. On the other hand Europe will be better placed with Biden due to a strained relationship with Trump, however the fact that this is strengthening the Euro causes another headache for the ECB’s Lagarde as she tries to control the spiralling cost of European exports and stimulate the economy internally.
The week ahead will be dominated by headlines on the outcome and potential consequences of legal challenge of the US election result. For now, the market is in buy mode and not even the increased virus cases seem capable of standing in the way of it.
A quiet start to the week with German Trade Balance in the morning and in the US session we get US Mortgage delinquency data.
First up is CPI and RPI Inflation data from China before UK Unemployment data. We then get French and Italian Industrial production and Eurozone ZEW Economic Sentiment.
The main and only significant release is the interest rate decision from the Reserve Bank of New Zealand followed by the statement and press conference. A quiet afternoon with national holidays in the US and Canada.
A big morning of data from the UK, with GDP, Construction, Trade Balance, Industrial Production and Manufacturing numbers. We get Industrial Production from the Eurozone before CPI and weekly unemployment from the US.
From the Eurozone we get Flash Employment and GDP q/q. In the afternoon we receive US Core and Non-Core PPI and University of Michigan Consumer Sentiment and Inflation Expectations.
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