In a week which saw the anniversary of Guy Fawkes’ famous gunpowder plot, it was in Washington where the fireworks were to be found, as the drama of the US presidential elections brought heightened volatility to financial markets.
The lack of physical fireworks on domestic shores became official government policy as the Prime Minister announced a second national lockdown on Saturday evening, setting the tone for Monday’s trading. Although such a move was largely priced in by investors, the more domestically-exposed FTSE 250 struggled on the news, with those companies forced to shut their doors once more experiencing large selloffs. The one bright spot was Ocado, a significant beneficiary from the last lockdown, jumping nearly 10% as the company said it would buy two robotics companies for a total of $287 million, aiding its logistics and infrastructure capabilities. Keeping a cap on any major movements were intensifying Brexit negotiations which are set to continue throughout the week.
Of course, the main event for the week was the US Presidential elections, taking place across the second half the week due to restrictions brought about by the Coronavirus. Seemingly going with a bang, the incumbent president, Donald Trump, first falsely announced he had won, then launched a legal action and called for recounts as his rival, Joe Biden, edged towards victory. With the polls suggesting a sweeping victory for the Democrats, the race was much closer than many commentators had expected as Donald Trump staged a late rally reminiscent of 2016.
Across a backdrop of confusion and chaos in many states, where the result was contested before it was even announced, markets kept a remarkably calm head, rising throughout the commotion. With the odds of a more stable president in the form of Joe Biden and a split Senate, making it hard for him to introduce planned corporate tax hikes, global markets staged something of a mini rally, more than recouping the losses endured the previous week. However, as uncertainty over who the winner would be and the potential legal repercussions of the result still lingered, quality fixed income and gold were also in demand as investors attempted to hedge their bets. Ten-year Treasury yields fell to 0.74%, having touched a five-month high of 0.93% at one stage on Wednesday. The overnight drop of 11 basis points was the largest single-day move since March's COVID-19 induced panic.
More good news was to come for markets, especially those listed in London, as the Bank of England also released some of its own metaphorical pyrotechnics. Threadneedle Street’s nine-member monetary policy committee (MPC) voted unanimously to ramp up its quantitative easing bond-buying programme in order to soften the economic fallout from rising infections and tougher restrictions with a new £150bn stimulus package. The bank did however leave interest rates at their historical low of 0.1% but warned they could act further if a second wave began to impact the economy like the first did. In a joint effort to re-ignite the domestic economy, the chancellor also announced that the government’s furlough scheme would be extended to March.
In a week dominated by geopolitical moves, Friday should at least give us some fundamentals to examine, with the first Friday of the month producing US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings allowing us to gauge how inflation may manifest in the world’s largest economy. The numbers should take on an added impetus with the US Federal Reserve looking to release a stimulus package of their own once the dust from the election settles.
With the fallout from a chaotic US election set to dominate the headlines for at least the coming week, market movement should be dictated by how seamlessly the result is announced.
Whilst the fight continues over who will move into one of the most famous properties in the world, it is with US housing that we start the week on the economic data front as Monday brings US Mortgage Delinquency figures. Acting as an important piece of data, especially with the role the US housing market played in the Global Financial Crisis a decade ago, the market keeps a close eye on the percentage of mortgages which were at least one payment late during the previous quarter. The data is important as unpaid mortgages act not only as a gauge of the property sector’s health but that of the wider economy, having a strong knock-on effect on the banks who finance them.
Domestic data should take centre stage by Tuesday as the British Retail Consortium releases its year-on-year numbers. Although the high street is undoubtedly under added strain due to the outbreak of the Coronavirus and subsequent lockdown, recent sales data has consistently beaten analysts’ expectations by at least double since its nadir in March and April, forming what has been a remarkable recovery as consumers continue to spend.
More UK-centric data is to come throughout the week as Thursday sees a slew of statistics, including the nation’s industrial production and business investment. With negotiations with the EU over Brexit continuing to intensify, the coming week should give us a better idea of how the domestic economy stands as talks go down to the wire.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in November 2020.