Please see below market update received from Brooks Macdonald this morning, which comments on the upcoming US election, the Brexit deadline and the rise of Covid-19 cases across Europe.
What has happened
Whilst we are only a few days into the earnings season it has been reasonably mixed with some idiosyncratic misses such as Bank of America, intertwined with cyclical earnings such as United Airlines which reference a still difficult economic backdrop. Once markets had added in another negative news day for fiscal stimulus, equities struggled and this weakness has followed into today.
The last nail in the fiscal coffin?
Treasury Secretary Mnuchin has been a key figure in the fiscal negotiations leading the White House administration in talks with the House Democrats. Yesterday Mnuchin said that he did not expect a stimulus package to be agreed before the election, this comes after extensive talks with House Speaker Pelosi. The issues appear to not just be the overall dollar number, but the policies included in the bill, suggesting that compromise will not be simple. As we have said before, whilst few investors were holding out hope of a full stimulus package, some were expecting a skinny deal ahead of the 3rd November. The market’s weakness post Mnuchin’s comments reflect the dying flame of a small package pre the election.
Today is the self-imposed deadline by Prime Minister Johnson to reach a trade deal with the EU. As widely expected, all reports are suggesting that Johnson will continue the talks post the EU Council meeting which is taking place today and tomorrow. With the Prime Minister under pressure due to the UK’s coronavirus response, adding the perception that he ‘chose’ a no deal route would just increase opposition. Last night a call took place between the EC President, EU Council President and UK PM which concluded with a comment that a decision on the continuation of talks would be made after the Council ends tomorrow. Sterling has taken this news positively, particularly in light of the progress seemingly made by both sides in recent weeks. Reports suggest an extension until early November could be the more realistic deadline.
What does Brooks Macdonald think
With COVID cases rising across Europe and governments taking increasingly tough measures including local and national lockdowns, a no deal Brexit added to the mix would be highly unwelcome. Our base case remains that a deal will be struck though our level of confidence in this isn’t high, this is the primary reason why we retain our underweight to both UK and European equities.
Source: Bloomberg as at 15/10/20
A succinct and interesting summary of the most relevant market information. Please check in with us again soon for further updates.