The coming weeks will continue to be characterized by uncertainty. US elections, Brexit, COVID-19 – these are the topics that the financial markets will likely revolve around in autumn and which are therefore also part of today’s edition of Finanzmarkt aktuell.
Donald Trump apparently had some catching up to do. The US President is known to have COVID-19 and was unable to continue his election campaign for a short time due to a hospital stay. After leaving the hospital surprisingly early and returning to the White House, the incumbent immediately rumbled on Twitter and asked for a vote with a number of capitalized tweets. Statements and requests such as “Law & Order. Go vote! “Or” Strongest military of all time. Go to vote! ”Sound bizarre to our ears, but should definitely appeal to his electorate. In the polls, the current president is behind the challenger Joe Biden. The complicated electoral system in the USA, in which it is not necessarily the number of votes, but the number of electors won in the individual states, is decisive, makes it possible for the new president to be the old one in the end – even if he wins fewer votes overall could. The so-called swing states are therefore always of particular importance in elections, i.e. those states in which it is extremely uncertain whether the Democrats or the Republicans will win. To further complicate matters, both houses of Congress will be re-elected on November 3rd – the House of Representatives in full, but only a third of the Senate. So it is quite possible that in the end the elected president will not have his own majorities in Congress. In addition, Donald Trump has already pointed out several times as a precaution that he may not recognize the election result because he considers the postal voting system to be illegitimate. A maximum of uncertainty, which makes it much more difficult for us to derive clear implications of the US presidential election for the financial markets.
Trump positive – Biden negative?
How will the election result be accepted in the stock markets? The last four years of Trump’s presidency were characterized by rising share prices, among other things due to tax breaks for companies and a more expansionary monetary policy. Donald Trump does not have an official election manifesto, but according to his statements, if he wins, his policies of the past four years should continue: tax gifts and “America First”. From Joe Biden’s election manifesto, we infer that corporate taxes could rise again. It remains to be seen whether this topic, which is rather negative for the stock markets, is at the top of Biden’s agenda. It is more likely that a large-scale infrastructure program will be launched, which both candidates basically want. Biden has a focus on renewable energies. Since the future president’s design options also depend on the majorities in Congress, and these are uncertain as described, the effects on the financial markets also remain unclear. We estimate that the election result will at best lead to short-term fluctuations in the stock markets and that even a President Joe Biden is not per se negative for the stock markets. Should there be a stuck game after the election and Trump even contest the election, there should be temporarily increased uncertainty and falling stock markets. For us, these would be possible buying opportunities, as the other framework data are positive.
Showdown between the EU and the UK
For months we have heard next to nothing new from Brexit. After the exit agreement came into force and the transition phase began on February 1, 2020, the coronavirus paralyzed negotiations. By the end of this year, the negotiations for the future partnership, which contains controversial positions above all with regard to the internal market and the customs union, must be concluded and ratified in parliaments. However, it does not look like that at all, a good three months in advance, and an extension of the transition phase is out of the question. In any case, Boris Johnson is very serious about the game and threatens to end the talks if his positions are not sufficiently heard. If there is no agreement, a hard Brexit will follow on December 31, 2020. This could entail great economic burdens for Europe, but the current situation brings one thing above all: uncertainty. The EU reconstruction fund should also start at the beginning of the year, a package of measures worth € 750 billion to support the member states particularly hard hit by the corona crisis. But there is currently great uncertainty as to whether the start will have to be postponed. The background is now discussions about the rule of law mechanism. This is intended to suspend EU funding in future if democratic values are dismantled in countries such as Poland or Hungary. Not only the southern European countries suffer from COVID-19, also the Eastern European countries, which are now also heavily dependent on tourism. With autumn, new COVID-19 infections increased again in many regions, including Germany. As expected, the economies will not shut down completely immediately like they did at the beginning of the pandemic. Rather, there are selective measures. Nevertheless, the uncertainty about the extent of the next wave of infections, along with the many other uncertainty factors mentioned, is depressing the mood of market participants. Investors should prepare for a stormy autumn phase on the capital markets, but we believe that the opportunities outweigh the opportunities in the medium term.
Disclaimer: This text is a column of the Weaver bench. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!