The Catch Up
- The new era of the Biden presidency was received with relief from the markets, as shares surged, oil prices jumped higher and the US dollar remained weak, all pointing out to a risk-on mode. The new president-elect comes with expectations of fewer regulatory reforms and more monetary stimulus both of which supported risk appetite.
- Markets are again green across the board, as the CSI300 jumped 1.85%, the Hang Seng 1.3%, as the ASX and the KOSPI by the same extent. At the same time, the Nikkei jumped by 2.1% and the US500 futures moving higher by 1.5%. In Europe, DAX futures were 1.7% higher.
- The most important move of the day was by the MSCI Asia-Pacific (ex. Japan) which moved to its highest since January 2018, after moving 6.2% higher over the previous week.
- While the Democratic candidate's victory was already priced in by markets to a large extent, the market's positive response was also highly anticipated. On the other hand, a Republican-controlled US Senate could pose some issues, but these are now largely ignored.
- As analysts note, markets have reacted strongly to the (likely) split congress, which means more confidence that interest rates will be lower for longer, a sign of prolonged economic prosperity. As such, analysts said the outlook might get tougher from here as investors focus on Biden's ability to expand fiscal stimulus and measures to fight the pandemic.
- Yesterday, the number of US cases moved north of 10 million, with the country setting a record number of new infections last week. This has led investors to suggest that the S&P 500 is not far from all-time highs and equity valuations are generally at heady levels.
- While a fiscal stimulus plan is still possible, despite a divided government, analysts no longer believe in a large package. This means that the US Federal Reserve will have to do more to bolster the world's largest economy.
- Drawing from the above, analysts also note that the best opportunities now lie within segments of emerging markets, in particular China and North Asia.
- Last week, equity markets rallied despite the election-induced volatility, with the S&P500 up 7.3%, the best gain in an election week since 1932. Other analysts note that this does not signal a need to modify their portfolios, as US economic prospects are still weak and fragile, as the country prepares for a second wave of the pandemic and growth slows down. These people also suggest that emerging markets have better prospects.
- In the commodity world, oil prices also jumped on Monday with Brent rising above $40 per barrel and WTI moving to $38.20. Biden's win was enough to offset demand worries amid rising global coronavirus cases.
- In the currency markets, the Aussie dollar rallied after the Biden presidency, which should be less confrontational on trade. The AUD stood at a 1.5-month high at $0.7297, gaining 3.3% since last week. On the other hand, the Yen was largely flat.
- The euro, which climbed 1.9% last week, was a shade higher on Monday at $1.1891, while the
Sterling also rose by 0.2%.
- Investor focus will be on Sterling and the Euro this week as Brexit trade negotiations will come to play at the EU summit on Nov. 15. Later in the day, the Bank of England's chief economist will give a speech on 'The economic impact of coronavirus and long term implications for the UK'.
- In the coronavirus front, the investors who are expecting a Covid-19 vaccine are beginning to buy bank stocks and industrials in anticipation of a roaring return in consumer confidence. As analysts note, industrials offer broad exposure to a rebound in confidence in areas from building products to aviation. On the other hand, a vaccine could trigger a selloff in stocks pumped up by the pandemic, such as some technology firms,
- Earlier today, Japan's leading index was 3 points up, to 92.9 against expectations of 88.6 and last month's performance of 88.4, a sign that the Japanese market is recuperating. In Germany, exports were 2.3% higher and imports dropped by 0.1% in September, with investors wondering how this relative weakness will play out.
- Five speeches today, with ECB President Lagarde and Board member Mersch due to speak, and so are Fed FOMC members Mester and Harker. Similarly, BoE Governor Bailey is set to speak at noon. Other than that, no major data releases are expected.