Chris Iggo, CIO Core Investments, looks at the markets and sees different omens for America, Europe and Great Britain.
USA: The prospect of Biden victory drives the markets – even after November 3rd
In my estimation, voters might expect a Biden administration to give pandemic control a higher priority. It seems obvious to many that the number of infections with Covid-19 is increasing in those states that were not excessively strict in enforcing social distancing and wearing face coverings. This has economic implications, as states like Wisconsin have seen a surge in infections and a surge in initial jobless claims last week. A possible clear election victory and cyclical reflationary outlook have been driving markets lately and are likely to remain the dominant drivers through November 3rd and possibly beyond.
Europe: banks with headaches
In a phase in which the European economies are at a lower level than at the end of 2019, new corona restrictions are being imposed. The sectors the new restrictions are focusing on are those already hit by previous actions and changes in consumer behavior. It is likely that more businesses will close, unemployment will continue to rise, and household incomes and expenses will take another blow. Lending deterioration is likely in the corporate and household sectors, and this is a headache for a banking system already grappling with an unhelpful interest rate environment.
Brexit negotiations: UK suffers
After a decline in gross domestic product, which was more pronounced for the UK than for most of its own trading partners, it does not seem very sensible to make exporting to these partners more difficult. It is difficult to argue against the view that such a development could hit UK firms on both the cost and revenue side. Dealing successfully with the pandemic and negotiating the largest trade deal in modern history – the Brexit deal – would be challenging for any government but proving to be extraordinarily difficult for the current UK government. While UK stocks are relatively cheap, there is little news at present that would encourage UK international asset managers to increase their weighting on UK stocks.
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At a glance – chart and news: Dow Jones Industrial – stock index