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