Please see below for Brooks McDonald’s weekly market commentary, received late afternoon 26/10/2020:
In Summary
- As coronavirus cases continue to rise in Europe and the US, fiscal stimulus needs will increase
- The Oxford vaccine candidate is reported to have led to a strong immune response in elderly patients
- Central bank season begins with the European Central Bank (ECB) and Bank of Japan meeting this week
As coronavirus cases continue to rise in Europe and the US, fiscal stimulus needs will increase
Over the weekend, the US and many European nations recorded their highest number of daily COVID-19 cases, as the blame game started between House Democrats and the White House over the stimulus impasse. With just over a week to go until the US presidential election, something fairly miraculous would need to occur to get stimulus over the line. US equity futures are trading down to reflect this probability.
The Oxford vaccine candidate is reported to have led to a strong immune response in elderly patients
Momentum remains behind the growing US and European case load. Italy has now approved a new national curfew as the country, which had previously fared well during the second wave, sees a sharp surge in cases. France also set a record high in new cases with the positivity rate of tests also rising to 17%1 . There were some positive vaccine stories over the weekend in relation to two front runners however. The University of Oxford/AstraZeneca candidate is reported to have led to a robust immune response in elderly patients which is critical for an effective vaccine. As the elderly are most at risk of serious illness from COVID-19, and have a weaker immune system than the young, there were concerns that a vaccine would fail to produce an effective immune response. The Oxford vaccine has also seen its trials restart in the US on Friday after being halted last month.
Central bank season begins with the European Central Bank (ECB) and Bank of Japan meeting this week
The ECB are meeting on Thursday, the same day as the Bank of Japan. We expect the ECB to warn of downside risks to the economic outlook as well as inflation. This comes as European coronavirus cases, and subsequent restrictions, have risen significantly since the last meeting. There is likely to be the (now traditional) attempt to hand the responsibility for further accommodation to governments, with the ECB stressing the limits of monetary policy in a negative rate environment. Regardless, we may well see some additional easing before the end of the year, particularly if European fiscal policy disappoints as expected. We are entering central bank season with the ECB and Bank of Ireland this week and the Federal Reserve and Bank of England next week. We are expecting the rhetoric to be very focused on the downside risks to the economy but for central bankers to try to put pressure on further fiscal policy more than promising additional easing. Quantitative easing is very effective at restoring order in financial markets but is less helpful in boosting the real economy. If coronavirus cases continue to escalate, fiscal policy will need to carry the weight of the second wave stimulus.
Articles like these provide an efficient way to receive well-informed views that cover the whole of market and are useful to maintain your up to date view of global market news.
Please keep reading our blogs regularly to give yourself a holistic and up to date view of markets.
Keep safe and well,
Paul Green
27/10/2020