News

Please see below commentary received from Fidelity International yesterday afternoon, which discusses how the US election result will likely impact the US economy as well as global trade. The article suggests that there may not be substantive changes in these areas and explains why.

As the dust settles on the US elections, a couple of uncertainties remain. Control of the Senate will not be resolved until runoffs are conducted in January 2021, to name one example. But investors weighing how much has changed should also consider the broader trends that remain in place. When it comes to key elements around geopolitics and economic strategy, will it be much more a case of style over substance?

Focus on the US

First, against a backdrop of a rolling pandemic crisis, both the near-term response and the medium-term consequences will mean an inevitable focus on the domestic economy. This implies an ongoing use of both fiscal and monetary policy to support the demand side of the economy, and additional investment in infrastructure to stimulate economic activity. The possibility of a split Congress means that higher-end estimates for fiscal stimulus, such as those anticipated under ‘blue wave’ scenarios of Democratic control of both houses, will probably fail to materialise. Once again, the Fed will be expected to carry more of the weight. Still, as we go through the coming quarters, the imperative for the White House and Congress will be to iron out the particular targets of spending (albeit at the lower end of the range of estimates), with areas such as infrastructure or healthcare likely to be beneficiaries.

Geopolitics unmoved?

Second, again discounting the issue of partisan approach, it is hard to see a meaningful near-term change in the geopolitical landscape, with key areas such as US-China relations potentially remaining fragile if we look at rhetoric from all sides of the US political spectrum over the course of this year. In many ways the narrative of competitive threat and security risk will just act to reinforce a need for investment closer to home. And while recent months have highlighted that global trade flows continue despite tariffs and other bilateral barriers, these flows are also likely to grow more regional over time as shorter supply chains become a priority in the wake of Covid.

The view from Asia

Third, I expect the direction of US economic strategy outlined above will continue to act as a drag on the US dollar in relative terms. Despite what is likely to be a more limited scale in a split Congress scenario, US stimulus measures and their impact on currency markets should, at the margin, ease conditions for Asia and developing markets globally. This, combined with a greater success in containing the spread of Covid-19 across large parts of Asia, will see a scope for not only a broader-based recovery in the region, but for Asia to increasingly decouple from what is being experienced elsewhere in the world.

Market implications

Turning to markets and how investors should be positioned as we head into 2021, clearly the points above speak to the attraction of non-dollar denominated assets. With the prospect of increased volatility, this suggests a good risk-reward balance in Asian fixed income markets, and in particular Chinese government bonds and Asian high yield bonds. On the equity side, we see value in markets such as India and across South East Asia, which have lagged much of the rest of the region over the course of 2020, and also for Japan, given the ongoing focus on corporate reform combined with attractive valuations. As the dust settles on the 2020 US elections, these are some of the broad global trends to watch.

We will continue to provide market analysis and relevant content from the world’s leading investment experts, so please check in again with us soon.

Stay safe.

Chloe

11/11/2020

Please see below the latest bulletin received from Brooks MacDonald this afternoon, which provides a refreshing update on the continuous rise in the markets following the US election result and the Pfizer vaccine news.

What has happened

The news from Pfizer/BioNTech catalysed a broad market rally across Europe although the momentum did fade at the latter end of the US session and coming into Asian markets. The rally had a decidedly cyclical skew with the unloved hospitality and leisure sectors seeing a sizeable boost.

The Pfizer vaccine

Given the squeezed timescales for a coronavirus vaccine, there were always many fears about the chances of a successful vaccine. One of the key determinants of ‘success’ is efficacy, and the Pfizer candidate is reporting over 90% which, for comparison, is hugely above that of the average flu vaccine which is around 50%. Politicians globally welcomed the news but advised caution that this would provide a quick win given the need to ramp up production and raised concerns around logistics given the vaccine needs to be deep frozen until the day of use. It is too early to say whether this vaccine news is a genuine game changer, but it is a salient reminder of how aggressively the under owned value and cyclical areas can snap back. Whilst the post pandemic world is likely to continue to be dominated by low growth, low inflation and low interest rates, favouring growth sectors, some balance is required given how cheap the cyclical/value areas of the market are.

Internal Market Bill falters

The House of Lords voted to remove the clauses from the internal market bill that would allow ministers to disallow elements of the EU withdrawal agreement. Despite this the government said it would progress with the provisions and add them back to the bill when it returns to Commons debate in December. The House of Lords defeat puts more pressure on PM Johnson as EU/UK trade talks reach their conclusions and President-Elect Biden’s victory swings the balance of power towards a multilateral approach to negotiation. Biden has previously warned that any destabilisation of the Northern Ireland peace process would make a US/UK trade deal very unlikely. 

What does Brooks Macdonald think

Whilst a Biden win is not a surprise for markets, many of the existing risks and opportunities in the world need to be revisited with a fresh lens. Brexit is a particularly interesting case as the EU may feel emboldened by the prospect of closer US relations, possibly encouraging a more aggressive position with the UK. This risks an impasse with the UK at exactly the time when Sterling will need clarity over the state of EU/UK talks.

Although this appears to be the light at the end of the tunnel, we are likely to see more volatility as the markets recover. Please check in again with us soon for further market data and news.

Stay safe.

Chloe

10/11/2020

Please see below this week’s Monday Market Update from Blackfinch investments – received today 09/11/2020.

Blackfinch Group Monday Market Update – Issue 16 – 9th November 2020

UK COMMENTARY

• Boris Johnson placed England in a second national lockdown. Although the rules are not quite as strict as the first time round, the public is under specific guidance on movement until 2nd December at least.

• The UK Manufacturing Purchasing Managers’ Index (PMI) for October was revised up to 53.7 from the flash estimate of 53.3. This was below September’s level, with the main drag attributed to a contraction in the consumer goods industry, blamed in part on regional lockdowns.

• The IHS Markit/CIPS UK Services PMI Business Activity Index was reported as 51.4 in October, down from 56.1 in September. However, a value above 50 still indicates an increase in activity.

• The Office for National Statistics reported that the UK’s headline measure of labour productivity fell by 1.8% year on year in the second quarter

• The Bank of England voted unanimously to implement a £150bn bond-buying exercise, ahead of market expectations for a repeat of the current £100bn. The gilt purchases will begin in January when the existing programme expires and will last throughout 2021.

US COMMENTARY

• All focus was on the presidential election. Donald Trump fared better than anticipated in the polls, but by close of business on Friday it appeared Joe Biden had the lead. Over the weekend he was confirmed as victor. Whether the current President will concede the election is another matter entirely.

• The Senate appears likely to remain Republican, creating a divided government in the US. This also continues the trend seen so regularly in the past ten years, including in the second half of President Trump’s term.

• Initial jobless claims fell to 751,000, however economists had predicted a figure of 735,000

• The total unemployment rate fell to 6.9% from 7.9%

ASIA COMMENTARY

• The Caixin/Markit PMI came in at 53.6 for October, marking the sixth straight month of manufacturing expansion in China

• Japan’s benchmark equity index, the Nikkei, reached a near thirty-year high at the close of business on Friday

A good update from Blackfinch Investments, providing a short summary of events from around the world over the past week.

Please continue to check back for our latest blog posts and updates.

Charlotte Ennis

09/11/2020

Please see below article received from T. Rowe Price this morning following the US election results. The commentary includes predictions on Biden’s priorities and policy proposals and the effects of this on the global markets. 

Democrat Joe Biden’s policy proposals as the next US president (pending the outcome of potential legal challenges) could have mixed implications for investors if implemented, according to T. Rowe Price investment professionals. On the positive side, many see Biden as likely to prioritize additional major fiscal stimulus to help the economy continue to recover from the steep downturn caused by the coronavirus pandemic. However, Biden also supports corporate tax increases that would be used to fund some of the additional spending. It is far from certain that they would be enacted given Republican opposition.

Spending and Taxes

Mark Vaselkiv, T. Rowe Price’s chief investment officer (CIO) for Fixed Income, believes that Biden is likely to seek additional funding for states and municipalities. “The economy is weakest at the state and local level, where governments need help to mitigate cuts in essential services amid quickly declining revenues,” Vaselkiv asserts. This push for funds for localities could help stabilize and support the credit quality of municipal debt for years to come as the economy recovers from the pandemic, he says.

Biden has proposed raising corporate taxes to halve the tax cut enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. Biden’s plan involves increasing the corporate income tax rate—currently a flat 21%—to 28%. That would still leave the rate meaningfully lower than the pre‑TCJA rate of 35%. President‑elect Biden would also likely try to boost taxes on the foreign income of US companies and institute a form of alternative minimum tax for corporations. However, Republican opposition could limit or prevent some of these measures to increase taxes.

Short-Term Effect on Corporate Earnings

Biden’s outlined tax hikes, if implemented, could reduce after‑tax corporate earnings. David Giroux, T. Rowe Price CIO of Equity and Multi‑Asset and head of Investment Strategy, says that the tax rate increases proposed by Biden could collectively reduce after‑tax profits for companies in the S&P 500 Index. However, some industries could benefit from increased spending. Global Focused Growth Equity Strategy Portfolio Manager David Eiswert agrees that US companies would experience an “earnings reset” if the Biden tax plan passes, although he also believes that the effects would be “manageable and likely offset, in part, by fiscal stimulus.”

Looking at corporate bonds, Vaselkiv asserts that “Biden’s tax increases would impact equities more directly than corporate credit, probably hitting the wildly profitable giant tech stocks the hardest.” A tax hike would not necessarily hold back growth, Vaselkiv adds, noting that US corporate earnings and the broader US economy both continued to grow after tax hikes during the Clinton and Obama administrations.

According to T. Rowe Price Chief US Economist Alan Levenson, the first order of fiscal business for Biden will likely be a debt‑financed coronavirus response and economic rescue package. Biden will probably wait until later in 2021 to try to implement his broader vision for economic renewal, with roughly half of the 10‑year cost expected to be offset by tax and other revenue increases. “The implied addition to debt is manageable because borrowing rates are low relative to the economy’s potential growth,” he explains.

Tensions with China seem to resonate across the political divide.

– Quentin Fitzsimmons, International Fixed Income Portfolio Manager

Pressure on China to Continue

All signs suggest that, as president, Biden will take a tough stance toward China on market practices and human rights issues, though he will likely seek multilateral partnerships and engage levers beyond trade in any renegotiation of the US‑China relationship.

“Tensions with China seem to resonate across the political divide,” says Quentin Fitzsimmons, a London‑based T. Rowe Price International Fixed Income portfolio manager. He believes Biden will maintain pressure on China to address concerns about intellectual property rights in the technology sector. “It’s tough to say how US‑China relations will evolve in a Biden presidency,” Science & Technology Equity Strategy Portfolio Manager Ken Allen states, “but if volatility were to lessen, that could be a positive for technology companies that are perceived as having some exposure to trade tensions between the two countries.”

However, according to Levenson, Biden may face tensions between reengaging more constructively with allies on trade while seeking to re‑shore critical supply lines and manufacturing jobs in general.

Industrials Could Benefit from Push Toward Energy Efficiency

Biden has indicated that he will seek higher levels of federal procurement spending and tax incentives to create jobs and drive economic development by rebuilding critical infrastructure. This push would focus on reducing carbon emissions and investing in clean‑energy technologies, although it could face opposition from Republicans in Congress.

Jason Adams, portfolio manager of the Global Industrials Equity Strategy, believes that, if implemented, Biden’s ambitious plans could accelerate advances in energy efficiency and emissions reductions. “Many industrial companies are part of the solution in this regard,” he says. Potential beneficiaries, he adds, could include companies specializing in air compressors, rail transport, commercial aircraft, electric vehicles, and industrial gases.

Conversely, US defense spending “faces the prospect of several years of a modest downward trajectory after a seven‑year upcycle, which would have been likely regardless of who was elected as the next president,” Adams asserts.

We don’t think there’s anything Biden will do that would change our view that…oil will remain in a long‑term bear market….

– Shawn Driscoll, Global Natural Resources Equity Strategy Portfolio Manager

Health Care Policies May Expand Market for Medicare-Focused Firms

Expanding access to health insurance also appears to be a priority for Biden, who has proposed lowering the age requirement for Medicare eligibility to 60 years from 65 and creating a new Medicare‑administered public option that would automatically enroll low‑income Americans who aren’t eligible for Medicaid. Health Services Analyst Rouven Wool‑Lewis believes that, if implemented, these policies could expand the market for Medicare‑focused managed care organizations while potentially siphoning away some customers from private health insurance providers.

President‑elect Biden and President Trump advocated different solutions to curb drug costs. Pharmaceuticals Analyst Jeff Holford says such proposals are more likely to be enacted in the Biden administration, which could negatively impact pharmaceutical stocks. Holford also notes, however, that the politics of health care legislation are complicated given the strong relationships that politicians across the political divide have with the pharmaceutical industry.

Potential for Heightened Bank Regulation

The Biden administration might seek to impose stricter rules and enforcement policies for banks. These potential measures could include additional limits on bank dividends and share buybacks as the U.S. recovers from the pandemic and its fallout. However, Gabriel Solomon, portfolio manager of the Financial Services Equity Strategy, believes that the regulatory environment may prove “less adversarial” than during the Obama administration, after lax bank regulation was widely viewed as contributing to the global financial crisis of 2008–2009.

Regulatory Moves Likely to Have Little Impact on Oil Market

Biden’s platform, as well as his comments on the campaign trail, suggests that he will try to tighten regulation of the fossil fuels industry, which would likely result in higher compliance costs for oil and gas companies. Biden has also voiced support for a moratorium on new oil and gas lease sales on federal lands and potentially halting the issuance of new drilling permits in these areas.

Shawn Driscoll, portfolio manager of the Global Natural Resources Equity Strategy, contends that conditions in the global oil market, not the regulatory implications of Biden’s election, are likely to have more influence on energy company earnings. “We don’t think there’s anything Biden will do that would change our view that, outside of the occasional countercyclical rally, oil will remain in a long‑term bear market because of rising productivity and falling output costs.”

Once Biden has been inaugurated, he will be faced with an ongoing pandemic, a struggling economy, and a divided country. It will be interesting to see how he tackles these challenges during his first few months in Office.  Please check in again with us soon for further up to date content.

Stay safe.

Chloe

09/11/2020

Please see below update received from Blackfinch Group yesterday afternoon which provides an insight into the ongoing race to the White House and the consequences of US events on the markets.

Although Biden appears to be edging closer to victory, we do not know how long it will take before the election result is revealed, as turbulence surrounding vote-counting continues. Please check in again with us soon for further updates.

Stay safe.

Chloe

06/11/2020

Please see latest emerging markets article below from Invesco – received 05/11/2020

Emerging markets beyond COVID-19: all about picking and choosing

02 October 2020

Arnab Das – Global Market Strategist

In the context of slow global growth, we believe investors can benefit from reducing home bias in favour of emerging market (EM) exposures. However, EM investing is much more than simply buying or selling the market. 

“Despite not slowing the virus, many EMs are reopening national economies and opting for regional lockdowns.”

Arnab Das, Global Market Strategist

In the context of slow global growth, low inflation and ultra-low yields (at least for some time to come), we believe investors can benefit from reducing home bias in favour of emerging market (EM) exposures. However, EM investing is much more than simply buying or selling the market.

Re-assessing emerging markets in the world beyond COVID-19

Post-lockdown re-openings, secondary outbreaks and rising global tensions raise crucial questions about the cycle and the long term, arguably more in EM than other asset classes:

1. Boost or cut EM exposure? Should investors seek higher growth hopes, inflation risks and hence yields in EM, expecting the global economy to recover sustainably, with low inflation, loose fiscal and monetary policies and a supportive financial environment? Or reduce EM exposure in fear of faltering recovery, rising inflation, higher trade/investment barriers, or all of the above?

2.Treat EM as one or pick and choose among countries and asset classes across the EM complex, including local currency, hard currency debt, or equity – as opposed to shifting index exposures?

We expect global financial conditions to continue to support EMs despite clear and present dangers, which we believe are reflected in higher risk premiums in many EMs relative both to developed markets (DM) at present and relative to EM history.

Easy macro policies, financial conditions, low inflation globally should support a gradual global recovery and ‘risky’ asset classes including EM, despite COVID-19 challenges.

We also believe investors should emphasize selectivity in EMs over time. Over the longer term, we expect EMs to reform domestic and international policies, causing growth models as well as macro and corporate performance to diverge. Investors should therefore be able to boost returns and may even be able to lower volatility via selective country and asset-class weightings.

The COVID-19 Great Compression…

The world suffered a “Great Compression” during the first half of 2020 as governments adopted lockdowns to protect public health, sacrificing private income and wealth. Deliberately compressing activity is very different than conventional recessions, in which monetary policy is tightened to stop inflation; or depressions, in which policy is too tight, causing financial stress or crises and multi-year downturn.

Almost regardless of economic structure – led by manufacturing, services, domestic demand or international trade, or size of government, the tighter the COVID-19 lockdown, the steeper the fall in GDP (Fig. 1, left chart).

Fig 1. A Great Compression: COVID-19 lockdown stringency closely related to GDP performance

GDP growth, QoQ vs. quarterly lockdown stringency averages. Left-hand side, Q1. Right-hand side, Q2. Source: Lockdown Stringency Index, Blavatnik School of Government, Oxford University. National statistical agencies, IMF, Invesco. Data as at various release dates during 1H2020. NB: Excluding China from the Q2 sample raises the R-squared tightness of fit to 0.68.

This downturn was much faster, deeper and wider than economic downturns, which are more gradual and tend to respond to monetary or fiscal easing more directly; wars in which productive capacity is destroyed and must be rebuilt; or natural disasters, which tend to be much more geographically concentrated. Hence, mapping the COVID compression, the current rebound and recovery ahead requires factoring in the conceptual similarities in lockdowns and practical differences in reopening.

Despite the shared compression, we therefore expect much greater differentiation as economies emerge from lockdowns, given vast differences in economic characteristics, macro policies and effectiveness in containing COVID-19. China, first into the pandemic and lockdown in Q1 and first to rebound in Q2, is weakening the global link between lockdown intensity and GDP (Fig. 1, right chart).

… is pushing EMs to re-open, despite rising caseloads and deaths due to policy limitations –

Despite not slowing the virus, many EMs are reopening national economies and opting for regional lockdowns. These policies are not so different from China and DMs with effective lockdowns and regional outbreaks; or the US and UK, which are re-opening generally but locking down regionally, because of ineffective national lockdowns.

We reckon most EMs and DMs will not reimpose economy-wide lockdowns but continue with regional lockdowns unless they face severe second waves.

Fig 2. Pandemic performance varies widely across DM and EM economies

Officially confirmed infections, rolling seven-day average. Source: Johns Hopkins Coronavirus Resource Center, Invesco. Data as at 3 August 2020. NB: Y-axis is on a log scale, base 10; 10-fold increases in caseloads occupy the same distance, to help in visualizing the exponential “reproductive rate” of the novel coronavirus behind COVID-19.

But there the similarities end: many EMs lack adequate space for social distancing; public hospitalization and treatment; and public borrowing to compensate for private income lost during lockdowns.

These challenges threaten DMs but are more severe in EMs – another reason the bar will be high for further nationwide lockdowns, reducing the chances of a double-dip economic compression and pressures on EM currency and asset valuations.

After all, its lockdowns and fear of the virus that have hit economies hardest, much more than the direct impact of illnesses and fatalities.

Re-opening rebound set to give way to a gradual, highly differentiated recovery

As lockdowns are released, we expect a re-opening rebound in many countries during Q2-3 as pent-up supply and demand are released. But afterward, we expect more gradual and differentiated recoveries as vast variations in fiscal space, in economic characteristics and in demographic exposure to the virus all come into play.

For example, fiscal support varies significantly across the G20 group of largest EM and DM economies, as well as from fiscal responses to the Global Financial Crisis – but is far larger as a share of global GDP today than in 2009.

These variations amid strong global fiscal support give us confidence that country performance will be differentiated amid global recovery.

Fig 3: 2020 fiscal support varies widely by country and compared to the 2009 Global Financial Crisis

Percent share of 2009, 2020 national GDP – left; percent share of global GDP in 2009, 2020 – right. Source: IMF Policy Tracker, IMF GDP Data, Atlantic Council, Invesco. Calculations based on data at various national release and announcement dates, and Atlantic Council as at 26 July 2020. 2009 based on IMF, Eurostat and G20 data. NB: Calculations exclude deferrals and guarantees; include discretionary fiscal support programs (aside from “automatic stabilizers”), announced and implemented programs.

Evolving international system points to gains from diversification and selectivity

During the heyday of globalization 1989-2009, EM investment was about capital gains generated by the convergence of high EM risk premiums to DM levels thanks to economic and financial integration.

The GFC slowed both globalization and global growth, and EM investment shifted to yield seeking and loss avoidance – essentially a carry play. Now, as international tensions rise, we expect EM countries to continue to adopt different regulatory, technological and policy frameworks, trade/investment partners and ultimately varied growth models. Therefore, the cyclical divergence now unfolding should lead to sustained diversity in economic performance.

This is a new world order in which, in the context of slow global growth and inflation and ultra-low yields (at least for some time to come), investors can benefit from reducing home bias in favour of EM exposures.

And capitalizing on diverging EM policy choices and performance would be enhanced by actively picking and choosing EM regions, countries, currencies, sovereign and corporate debt and equity to overweight and underweight.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis

05/11/2020

Please see below ‘Markets in a Minute’ update received from Brewin Dolphin yesterday evening. The article comments on a rise in Covid-19 cases leading to re-imposed Government restrictions and the world-wide effects of this on the markets.

Global equity markets suffered some of their worst falls since the start of the pandemic during the past week as Covid-19 infections continued to break new records.

In the last week of trading before the US elections today, numerous countries saw their highest daily infection rates and, worryingly, hospitalisations and deaths also increasing rapidly.

The data led to the widespread introduction of more severe containment measures across the UK and Europe. France and Germany announced full varying degrees of national lockdowns, with England set to join them from this Thursday.

As a consequence, optimism is fading for the fourth quarter, with the UK and eurozone economies likely to contract in the last three months of the year.

On the upside, there were reports of progress on Brexit, with talk of a compromise on fishing rights that would grant reduced access to EU boats in British waters. The news helped the pound strengthen against the dollar and the euro.

Last week’s markets performance*

• FTSE100: -4.82%

• S&P500: -5.63%

• Dow: -6.47%

• Nasdaq: -5.51%

• Dax: -8.61%

• Hang Seng: -3.25%

• Shanghai Composite: -1.63%

• Nikkei: -2.29%

Share markets rise despite announcement of lockdown in England

Markets rose on Monday despite the generally bad news flow over the weekend. The FTSE100 closed up by 1.4%, while equities across Europe also saw good gains. The benchmark EuroStoxx600 rose by 1.61%, the Dax gained 2% and the CAC40 finished 2.11% higher.

It may seem counterintuitive for markets to rise after so much bad news, but it reflects the fact that the market was anticipating a lockdown at some point, and investors prefer to have certainty – even if it is confirmation of something unwelcome such as a national lockdown – than live with uncertainty. There is an expression in the investment world that holds “sell the rumour, buy the fact” and that reflects precisely that investors are happier to put money to work in equities when they are sure about what events may hit the market, rather than making decisions based on guesswork.

Markets also rose in the US, on the last trading day before the election. The Dow closed up 1.60% and the S&P 500 was 1.23% higher at 3,310.24. The Nasdaq closed up by 0.42% at 10,957.61.

UBS mobility restrictiveness rating (scale of 1-10)

Furlough scheme extended

The government is extending the furlough scheme which pays up to 80% of wages for those unable to work during the new lockdown period.

The new lockdown will close pubs, restaurants and non-essential shops from Thursday until 2 December, and the government says it intends to return to the three-tier system when the lockdown ends, although the government has conceded that the full lockdown may have to be extended beyond 2 December if the “R” rate has not fallen sufficiently.

What is not clear is whether the furlough scheme will also be extended if that is the case.

US election

Despite Joe Biden being ahead in the polls and looking likely to take the White House and the Senate, the risk of a contested election this year is high for a couple reasons.

One is the fact that a very high proportion of votes will be mailed in. Donald Trump has repeatedly said that this increases the risk of fraud, which makes the loser more likely to contest the result.

Donald Trump has already objected to a Supreme Court decision to allow mail-in ballots in Pennsylvania to be counted up to three days after the election. In a tweet, he warned there could be violence on the streets as a result. This highlights how keen he is to dispute any close results.

Because these postal votes take longer to count, it is possible that Trump is ahead at the end of election day and claims victory prematurely. If the postal votes later change the result to a Biden victory, Trump would likely claim the comeback was down to fraud.

If either candidate wanted to contest the result, there is a lot of uncertainty and disagreement among legal experts over what would happen. The Supreme Court could get involved like it did in 2000, which was the last time the presidential election was contested, but some experts think the Supreme Court would choose not to this time, saying that the dispute is inherently political and not suitable for the court to decide. Biden or Trump could take their case to Congress, who under the constitution has the responsibility for counting Electoral College votes.

If the election ends up being contested, we’d likely see equity markets move lower. Back in 2000, it took more than five weeks to resolve, and the S&P 500 lost as much as 9.6% from election day before Al Gore conceded.

The US election appears to be more closely fought than the polls have previously indicated. Further changes in the markets are to be expected as we await the election result over the coming days. Please therefore check in again with us soon for market updates and relevant news. 

Stay safe.

Chloe

04/11/2020

Please see below this week’s market commentary update article from Brooks Macdonald, received 02/11/2020.

Weekly Market Commentary | Tuesday’s US election day key focus for markets this week

02 November 2020

Read detailed economic and market news from our in-house research team.

• Weekly Market Commentary
• COVID-19 updates

By Matthew Cady
Global equity markets suffer their worst week since March, as a coronavirus second wave threatens the pace of economic recovery

UK Prime Minister Boris Johnson signals a move back into lockdown for England from Thursday, but the Furlough Scheme is extended

The US election on Tuesday is the highlight for the week, but markets will also be watching policy decisions due from US and UK central banks

Global equity markets suffer their worst week since March, as a coronavirus second wave threatens the pace of economic recovery

Global equity markets fell -1.2% on Friday, finishing the week down -5.3%, and suffering their worst week since March (MSCI ACWI net total return in US dollar currency terms, MSCI: please see important information). Gripping the markets’ risk-off mood was concern about the economic impact from a rising second wave of coronavirus infections. Ending the month on a sombre note, the US set a record for daily new cases on Friday with almost 100,000 people testing positive according to the US CDC¹, and a new one-day country world record for the pandemic. Globally, the US continues to lead with over nine million cases₂, but COVID-19 is seeing a resurgence across other countries, including UK and Continental Europe.

UK Prime Minister Boris Johnson signals a move back into lockdown for England from Thursday, but the Furlough Scheme is extended

Over the weekend, England announced a return to a national lockdown, joining similar measures taken in France and Germany in recent days. England will start a new country-wide lockdown on 5 November, lasting four weeks until 2 December, although lockdown 2.0 will be somewhat different with schools and universities remaining open. The UK Prime Minister also indicated that the Furlough Scheme, which was due to be replaced at the end of October, would instead be extended at 80% of hours not worked, and would last for the period of the new lockdown.

The US election on Tuesday is the highlight for the week, but markets will also be watching policy decisions due from US and UK central banks

This week, the long wait is over. Tuesday 3 November is US election day, but that date is less significant this year, as record numbers of US citizens have already chosen to vote early either in person or by post. According to the US Elections Project as of 1 November, some 92 million Americans (equivalent to 66.8% of the total votes counted in the 2016 US election) have already cast their ballots³. According to Reuters, only 47 million votes came before Election Day in 2016⁴. In addition, some states are allowing the counting of late postal ballots, for example, by three days and nine days after election day respectively in the case of swing states Pennsylvania and North Carolina. Normally, a state requires ballots to arrive on election day in order to count but, following legal rulings, this time for some states it means that ballots need only be postmarked by election day or the day before and can still be counted if they arrive within the allotted time after election day. This suggests that for a very close-run result in some states, postal votes might be the deciding factor and counting those in the days following 3 November could well leave markets unsettled.

While the US election is the main event of the week, markets will still have plenty on their plate on the data front. The week starts with final October purchasing manager surveys for manufacturing around the world, before getting services and composite surveys later in the week. The week will end with US October payrolls and unemployment data on Friday, and while consensus is looking for another fall in the US unemployment rate to 7.7% in October (from 7.9% in September⁵), the focus will be on any clues about the pace of change behind the headlines. If that wasn’t enough, it’s another big week for corporate earnings, with a host of companies reporting Q3 results through the week including AstraZeneca, the company behind one of the hoped-for COVID-19 vaccines, due on Thursday. Finally, UK-EU trade discussions continue this week, and news here could surprise either way. With markets having been on the back foot in recent sessions, it means the pressure-release valve button for this week is back with the US Federal Reserve who will announce their latest policy decisions this week on Thursday. Closer to home, the UK Bank of England’s Monetary Policy Committee also announces its latest policy decisions on Thursday and following the latest UK lockdown measures and extension to the Furlough Scheme, markets will be expecting policy coordination to be delivered.

A useful article from Brooks Macdonald, focusing on the UK national lockdown and the US election.  The US is one of the most influential markets globally, what happens next from a political point of view is important to the global economy.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis

03/11/2020