CFD’s zijn complexe instrumenten en gaan gepaard met een hoog risico snel geld te verliezen vanwege de hefboom. 67% van de particuliere investeerderaccounts verliezen geld als ze in CFD’s handelen bij deze aanbieder. U dient zorgvuldig te overwegen of u begrijpt hoe CFD’s werken en of u het zich kunt veroorloven om hoge risico’s te nemen op het verliezen van uw geld.
Stocks up as earnings optimism wins, inflation expectations higher
European stock markets rose in early trade Friday, set to finish the week largely flat after a little wobble but not a huge amount of movement. Churn seems to the be order of the day after a decent run up for the FTSE 100, which hit its best level in about 18 months last Friday. It’s not far off that level this morning. Bit of a double whammy for UK this morning with the Bank of England chief economist warning inflation will exceed 5% and retail sales falling again. Stagflation vibes but sterling holding on ok and 2yr gilts back off their recent highs, though the wires just flashed the UK 10-year breakeven inflation rate has risen to its highest in 25 years. A GfK report showed consumer inflation expectations jumping to a record high. That’s what the Bank of England is expressly trying to avoid. Asian shares were up as Evergrande repaid a missed dollar interest payment. IHG shares off 2% despite a rebound in bookings thanks to Brits doing more holidaying in the UK, Sainsbury’s also lower as it abandons plans to sell its bank.
The S&P 500 closed at a record high and made it seven straight days of gains amid a mood of positivity around earnings. It ends a two-month pullback that saw it decline a modest 6% before recovering. Rates are higher – US 10s at their highest since May at 1.7% and 2s at a year high, curve flatter. The 10yr TIPS breakeven inflation rose above 2.61% to hits its highest since 2012. But investors are shrugging off inflation and expected central bank policy moves because of earnings growth being more positive than thought. Tesla shares rose to a record after earnings beat expectations. Energy and financials lagged, megacap tech did the lifting +1% (FANG+TM up 1%). Again slower growth, higher inflation supports growth stocks as real growth is at a premium. A steep drop for IBM prevented the Dow Jones from rallying.
Not a huge move in FX this morning – dollar index around the 93.60 area, major pairs stuck to well-worn levels. GBPUSD is trying to regain 1.38 and make a fresh stab at what looks like a near-term top around 1.3830 – the high of each of the last three days.
Donald Trump + social media + SPAC. It feels like a kind of reassuringly volatile mix. Trump is launching his own social media platform called TRUTH Social. It needs capital letters, of course. I’d maybe even suggest ‘TRUTH! SOCIAL!’ might be more appropriate. Banned by Twitter and Facebook, Trump is taking on the Silicon Valley elite and fake news in the way he knows best. Shares in Digital World Acquisition Corp. (NASDAQ: DWAC), the Spac that merged with the platform company, soared as much as 400% and had to be halted at one point amid very heavy volume. Trump still sells. The stock finished up 357% at $45.50.
I can’t see the majority of people ditching their FB and Twitter accounts for this. But you can see a large chunk of disaffected Americans, chiefly Republican/Trump voters, giving it go. I don’t think this ends the dominance of the other platforms, but tells you a lot about what a lot of people think about the platforms they use. “I created TRUTH Social and TMTG to stand up to the tyranny of Big Tech,” says DT. “We live in a world where the Taliban has a huge presence on Twitter, yet your favorite American President has been silenced. This is unacceptable.” He’s got a point.
If you don’t have a controversial ex-President to back your social media platform, you have to rely on more mundane things like advertising revenues to drive cash flow. So poor Snap shares collapsed overnight as third quarter revenue expectations missed expectations after Apple’s iPhone privacy changes hit the advertising business. Daily active user growth was sluggish and the company warned of the global supply chain problems and labour shortages hitting advertising demand. Shares plunged by more than 21% after hours. Facebook and Twitter both dropped by more than 4% in sympathy.
The Federal Reserve has banned individual stock purchases by top officials and outlined a broader set of restrictions on their investing activities. These will ‘prohibit them from purchasing individual stocks, holding investments in individual bonds, holding investments in agency securities (directly or indirectly), or entering into derivatives’.
The move came as it emerged that Fed officials were warned on March 23rd, 2020, to observe a ‘trading blackout’ for a period of ‘several months’ due to recent and likely upcoming actions by the Fed. The same day, the Fed did its ‘everything it takes’ moment by committing to open-end bond purchases “in the amounts needed to support smooth market functioning”. If you, say, knew the Fed was about to provide the ultimate backstop to the stock market, it would be useful, I assume. I figure that if you owned a tonne of stocks you’d find it valuable to know what the Fed was about to do or not do. Which is why it obviously stinks that Fed members have been allowed to trade individual stocks at all. Messrs Kaplan and Rosengren were trading again within weeks, not months, of the memo date.
If you read the memo a certain way it just sounds like the ethics people were actually just trying to offer some good advice – don’t do any unnecessary selling, we got this: “In light of the rapidly developing nature of recent and likely upcoming (Federal Reserve) System actions, please consider observing a trading blackout and avoid making unnecessary securities transactions for at least the next several months, or until FOMC (Federal Open Market Committee) and Board policy actions return to their regularly scheduled timing.”
Tesco profits slump, stocks swinging on mixed stimulus messages
Stocks fell after Donald Trump nixed hopes of a stimulus deal, or so it seemed. The S&P 500 declined 1.4% on the day having earlier traded higher.
But Trump also called for support for airlines and then sent a tweet addressing the House Democrat leader Nancy Pelosi: “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?”
If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy? @MarkMeadows @senatemajldr @kevinomccarthy @SpeakerPelosi @SenSchumer
— Donald J. Trump (@realDonaldTrump) October 7, 2020
In short, Republicans, including the President, don’t want to pay for a tonne of social programmes which Democrats have made part of the stimulus bill. But they do want to support the economy. Stimulus is clearly coming some way, somehow, just probably not before the election. Or it could, who knows.
Markets remain clearly on the hook to the headlines but the fundamentals haven’t changed much. The election is taking on more significance the closer it gets and markets just want it out of the way to move forward.
Biden’s lead in the polls is compelling and tonight’s vice presidential debate probably won’t change much with so few voters undecided. Nevertheless, Trump is back and cannot be written off just yet.
Indeed whilst the S&P 500 fell, it didn’t even look at 3,300 and remains in the middle of the September range. Earlier it briefly broke the Sep 16th intra-day high, hitting 3,431. European markets are similarly short of much direction right now – in fact they’ve been clamped in a tight range since June and were flat in early trade on Wednesday.
Tesco shares up on earnings
Tesco profits fell as costs and sales rose. Operating profit before nasties was down 15% despite group sales rising almost 7%. Retail free cash flow decreased by £91m year-on-year to £554m. Tesco Bank is becoming a headache and needs to be offloaded – sales here slipped a third and it slumped to an operating loss of £155m due to provisions for bad debt and lower income.
Management noted that a ‘marked deterioration in macro-economic indicators, particularly UK unemployment and GDP, drove an increase in the provision for potential bad debts’. Shifting the financial division on to some other party seems like one of the first things for Ken Murphy. Having already offloaded the mortgage book, Tesco has one foot out the door already.
Booker continues to do well with Retail sales up 22%; offsetting Catering sales falling 12%. And whilst we often compare Tesco to a super tanker that can take a long time to turn around, Tesco’s scale has been important in retooling for the pandemic age.
Online delivery capacity more than doubled to reach 1.5m slots a week, which compares favourably with Ocado and the problems it has in building capacity. Whilst increases costs, being provisioned to handle more online orders is essential and makes Tesco look well placed – shares rose over 2%.
Democrat report hammers big tech
As flagged in yesterday’s note, a Democrat-led Congressional committee has issued a damning report on big tech. Following more than a year of reports and investigations, the 449-page report said Amazon, Apple, Alphabet and Facebook enjoy ‘monopoly power’ and called on them to restructure their businesses and possibly even be broken up.
It’s just a report at this stage but a Democrat clean sweep in November’s elections could see elements become legislation. Share in the four companies fell by around 2-3% yesterday.
FOMC meeting minutes later will be parsed for any further details on what policy makers believe could trigger any tightening. The September meeting minutes ought to provide more granular detail about how policymakers view the shift to average inflation targeting, and to what extent the consensus is strained by this.
EIA data in focus for oil
EIA inventories out later today coming the API report yesterday showed build in crude stocks of 951k barrels in the week ending Oct 2nd. As previously argued, we need to closely watch global inventories flipping from draws to builds which would signal demand failing to re-emerge at the levels anticipated.
EIA is forecast to record a draw of 1.2m barrels. WTI is trading at $40 but faces resistance.
Chart: E-mini futures take elevator down on Trump tweets but climb stairs back up
Unhealthy market fixations, Cineworld’s time to die?
There has been a lot of column inches written, and much ink spilled, over Donald Trump testing positive for the coronavirus. There were, I fear, a few too many quick to sound the alarm and say this would see stocks ‘tumble’, etc.
True, US stock markets fell on Friday, with the S&P 500 down 1%. But this was 25pts above the lows of the day and likely just as much about a tepid September jobs report from the US as anything else; the broad market finished the week up by 1.5% in the end. Hopes of stimulus persist and Nancy Pelosi said on Sunday that lawmakers are making progress.
Traders should still be on alert for updates on Trump’s status, but unless things go very bad it should just be a lot of noise. The President could be discharged from hospital today.
European markets rose in early trade but pared gains as PMIs crossed to show lacklustre recovery in the Eurozone. US stock futures indicated a bounce when Wall Street opens later. One market that has seemingly been brought back from the brink is the bond market, which looked to all intents and purposes like it had been completely killed by the Fed.
Treasury yields moved higher on hopes of stimulus with the US 10-year showing some vital signs at last and nudging up to 0.7%.
US labour market recovery slows
The US labour market is not in good health, with the economy creating 661k jobs in September vs the 800k expected. This was also a marked decline from the 1.371m created in August. The unemployment rate declined for a fifth straight month to 7.9%, but it remains at historically high levels.
The US economy has recovered about half the jobs lost at the peak of the pandemic. The problem remains the same as we have been saying for months now – the reopening rebound was the easy part. The hard slog lies ahead, and it could take years to fully recover all the lost jobs. The UK seems to be in a similar position.
Cineworld stock tumbles as chain shuts UK and US theatres
Time to die? Cineworld is closing all its cinemas in the UK and US amid a collapse in demand due to the pandemic. Shares plunged 50% on the news this morning. The delay to the next James Bond film was the straw that broke the camel’s back, but Cineworld was a little bloated before the pandemic struck.
Net debt of over $8bn – thanks mainly to two large leveraged acquisitions in recent years – and a market cap of $540m by the close on Friday left Cineworld in a difficult position to refinance if punters were not coming through the doors; without the Bond franchise to draw people in there was little option – closing its theatres at least gives it a chance to preserve cash and wait for things to improve. Refinancing by some sort of rights issue seems inevitable.
However, I fear there have been permanent behavioural shifts in consumers that will mean the market is forever smaller. It is hard to gauge right now what permanent damage is done to cinemas, but the closure of Cineworld, however temporary, is a plain indicator that it could be significant and lasting.
The advance of over-the-top streaming services, especially Netflix with its vast Hollywood budgets and ability to make feature films, has been a critical blow to the industry and Covid has vastly compounded the problem by keeping viewers away. In its interim results last month, the company warned that a worsening of the pandemic could leave it unable to survive; today’s announcement confirms that it is on the brink.
Demand uncertainty hits Tesla
Tesla shares fell 7% on Friday after the company failed to quell longer-term demand concerns despite delivering a record number of cars in the third quarter. The company delivered 139,300 vehicles, compared with expectations of 137,000 vehicles.
It looks to be a bit of an unusually bad reaction to very impressive numbers. As the Shanghai factory ramps production Tesla should be able to steadily increase volumes despite the pandemic, albeit Elon Musk’s target of 500k this year looks out of reach for now.
Monetary policy in focus this week
It’s going to be a busy week for central bank jawboning – the Fed’s Powell, Kaplan (the hawk), Harker, Williams, Kashkari, Barkin and Evans are all due on the wires in the coming days. Also watch for the FOMC minutes from the September meeting for more granular detail about how policymakers view the shift to average inflation targeting, and to what extent the consensus is strained.
The ECB latest meeting minutes are also due on Thursday and similarly there is a slew of speakers slated for the week, including Lagarde, Lane, Guindos and Mersch.
Meanwhile the Reserve Bank of Australia could cut rates to 0% when it meets this week. Futures markets have indicated odds of a rate cut at about 50%. However we could well see the RBA cut from 0.25% to 0.1%, or it could delay until November 3rd.
Deputy governor Guy Debelle recently outlined policy tools the RBA is considering to help it meet its twin mandates on employment and inflation, including foreign exchange intervention and negative interest rates.
Chart: Gold continues to slide down the channel – watch the 21-day SMA at the top and 100-day offering support underneath as potential pivots
Volgende week: Eerste rechtstreekse confrontatie tussen Trump en Biden
Dinsdag is het eerste Amerikaanse verkiezingsdebat en het is daarmee ook een belangrijke week voor de financiële markten. Donald Trump deed er tot nu toe alles aan om twijfel te zaaien over de mentale fitheid van Biden en noemde hem „Sleepy Joe”. Legde hij de lat daarmee misschien te laag voor zijn tegenstander, of zullen verbale blunders Biden parten gaan spelen?
Nadat beide kandidaten hun licht hebben laten schijnen over de economie, volgt een andere update over de arbeidsmarkt: het vrijdag te verschijnen rapport over werkgelegenheid buiten de landbouwsector.
Mogelijk vuurwerk bij het Amerikaanse presidentiële debat
De kans dat nieuwskoppen over de Amerikaanse presidentsverkiezingen de markten beïnvloeden groeit, nu president Donald Trump en de Democratische kandidaat Joe Biden zich opmaken voor het eerste verkiezingsdebat op 29 september. De onderwerpen kunnen veranderen als de actualiteit daarom vraagt, maar tijdens het schrijven van dit bericht waren de volgende debatonderwerpen bekend:
- Staat van dienst van Trump en Biden
- Het Hooggerechtshof
- De economie
- Rassenproblematiek en geweld in Amerikaanse steden
- De integriteit van de verkiezingen
Een lijst met zeer controversiële onderwerpen, maar de vraag is of het debat over deze belangrijke thema’s in staat is de mening te veranderen van het zeer verdeelde electoraat.
In de nationale peilingen ligt Biden 7,1% voor Trump volgens onze poll tracker. Zijn leeftijd en verbale blunders blijven Biden echter achtervolgen en het risico bestaat dat hij overschaduwd wordt door de agressie debatstijl van Trump.
Maar omdat Trump al maandenlang vraagtekens zet bij de mentale capaciteiten van „Sleepy Joe”, vrezen sommige Republikeinen dat hij daarmee de lat erg laag heeft gelegd voor Biden.
Werkgelegenheid buiten de landbouwsector
Een paar dagen na het debat, dat zeker ook over de toestand van de economie zal gaan, volgt meer nieuws over de gezondheid van de arbeidsmarkt. De groei van de niet-agrarische loonlijsten ligt iets onder de voorspelling in augustus, met 1,371 miljoen in plaats van de verwachte 1,4 miljoen.
Van de meer dan 22 miljoen Amerikanen die hun baan kwijtraakten na het uitbreken van de pandemie, zitten er 11,5 miljoen nog steeds zonder werk. Er is nog een lange weg te gaan naar herstel van de arbeidsmarkt en sommige analisten verwachten dat de banengroei opnieuw zal vertragen.
Inflatie, PMI’s van Caixin en ISM, definitieve groeicijfers
Andere data om op te letten deze week zijn de flash reports over inflatie in Duitsland en de eurozone en de Chinese Caixin Manufacturing PMI. Donderdag veel Amerikaanse data, verwacht worden cijfers over consumentenbestedingen (Core PCE), persoonlijke inkomens en uitgaven, initiële en nieuwe uitkeringsaanvragen en de ISM Manufacturing PMI.
Definitieve groeicijfers uit de VS en het VK en definitieve productie PMI’s uit lidstaten van de eurozone en het VK kunnen wellicht op belangstelling rekenen als de cijfers aanzienlijk afwijken van de aanvankelijke berekeningen.
Winstcijfers: McCormick, Micron, PepsiCo, Constellation Brands
McCormick daalde met -12% na de piek op 1 september, maar staat nog steeds 65% boven het dieptepunt van maart. Recentelijk verkochten zowel hedgefondsen als insiders van het bedrijf het aandeel, dat verhandeld wordt voor -9% onder het gemiddelde prijsdoel op Wall Street.
Micron Technology daarentegen steeg 27%, hoewel er in het afgelopen kwartaal ook stevig verkocht werd.
Donderdag rapporteren zowel PepsiCo als Constellation Brands voor de openingsbel. Na het herstel in maart worstelde PepsiCo om boven de openingsniveaus te blijven en momenteel staat het aandeel -4% lager ten opzichte van het begin van dit jaar. De laatste onderzoeksgegevens over dit aandeel door Thomson Reuters vindt u op ons platform.
Constellation Brands hield dit jaar een vrij horizontale lijn aan. Analisten zien een potentiële stijging van 9% voor het aandeel.
Hoogtepunten op XRay deze week
Bekijk de volledige agenda van financiële marktanalyses en trainingen.
Belangrijke economische agendapunten
Kijk uit naar de belangrijkste economische agendapunten deze week. Een volledige kalender met economische en corporate events is beschikbaar op het platform.
|23.50 UTC||28-Sep||Bank of Japan Summary of Opinions|
|Pre-Market||29-Sep||McCormick & Co – Q3 2020|
|12.00 UTC||29-Sep||German Flash Inflation|
|14.00 UTC||29-Sep||US CB Consumer Confidence|
|23.50 UTC||29-Sep||Japan Preliminary Industrial Production / Retail Sales|
|After-Market||29-Sep||Micron Technology – Q4 2020|
|01.45 UTC||30-Sep||China Caixin Manufacturing PMI|
|06.00 UTC||30-Sep||UK Finalised Quarterly GDP|
|09.00 UTC||30-Sep||Eurozone Flash Inflation Data|
|12.30 UTC||30-Sep||US Finalised Quarterly GDP|
|14.30 UTC||30-Sep||US EIA Crude Oil Inventories|
|07.15 – 08.00 UTC||01-Oct||Eurozone Final Manufacturing PMIs|
|08.30 UTC||01-Oct||UK Final Manufacturing PMI|
|Pre-Market||01-Oct||PepsiCo – Q3 2020|
|Pre-Market||01-Oct||Constellation Brands – Q2 2021|
|12.30 UTC||01-Oct||US Core PCE, Personal Income, Personal Spending, Jobless Claims|
|14.00 UTC||01-Oct||US ISM Manufacturing PMI|
|14.30 UTC||01-Oct||US EIA Natural Gas Storage|
|01.30 UTC||02-Oct||Australia Retail Sales|
|12.30 UTC||02-Oct||US Nonfarm Payrolls Report|
|14.00 UTC||02-Oct||Finalised University of Michigan Sentiment|
US Presidential Election: To Vote, or Not to Vote – That is the Question
As the 2020 US Presidential Election creeps into view, the United States is a country divided. With polarisation increasingly prominent, and ever-stronger partisan loyalty, the famed ‘floating voter’ is nearing extinction.
Whilst almost 40% of the electorate identify themselves as independents, these figures hide a residual bias which exists in most. Recent research has found that 93% of the electorate have some sort of partisan lean, with only 7% considered truly neutral. This illustrates the desire of many American voters to be considered independent, even if they are almost certainly going to vote for the same party in every instance.
And yet, conventional wisdom tells us that the most successful campaigns are those which reach out the middle ground and win over these floating voters. If the aforementioned research is correct, such a strategy may no longer be effective.
Instead, we suggest that turnout is the key to victory in modern US elections. The most important decision a voter can make is not who to vote for – for the vast majority this is a foregone conclusion. Rather, the voter choice that really matters is whether to vote at all.
One need only look back to 2016 to exemplify this point, where Hillary Clinton lost the election by less than 100,000 key swing state votes. By comparison, 4.4 million people who voted for Obama in 2012 didn’t vote in 2016, more than enough to overturn Trump’s wafer-thin victory.
Some research has even suggested that, had turnout remained at 2012 levels, Clinton would have won 323 electoral college votes – enough to deliver her the White House comfortably. In states such as Michigan, Wisconsin, Pennsylvania, Florida, and North Carolina, it was a failure to turn out their own voters which scuppered Clinton, not a failure to win over the centre.
Can Democrats recover African American vote?
The challenge for the Democrats in this election year, both at the Presidential and Congressional level, will be to recognise this as the root of their failure, and to take action in response. In particular, rebuilding African American turnout could prove decisive, after the 7% drop which occurred between 2012 and 2016.
Perhaps Biden’s choice of VP is a recognition of the importance of African American turnout. Although Kamala Harris is unlikely to provide an Obama-sized boost to African American enthusiasm, she may go some way to bridging that gap.
This is especially likely in the context of the Black Lives Matter movement, which could also help to increase turnout among minority demographics.
Which campaign will adapt best to mail-in ballots?
The prominence of mail-in ballots could throw a spanner in the works, though, with campaigns having to radically change their Get Out the Vote operations in response to the new circumstances.
Whereas previous elections have seen a focus on last-minute voter outreach, the early registration deadlines will mean that a longer-term strategy is required. The campaign which adapts to these changes most effectively will gain a critical edge come election day.
To vote, or not to vote: that is the question. The answer will decide who resides in 1600 Pennsylvania Avenue come 2021.
US election playbook: navigating the volatility with 40 days to go
- Temporary dislocation
- Too many variables
- Bigger risks ahead
Given the once-in-a-lifetime pandemic, the US election is being held in exceptional circumstances. All else being equal though, we can deduce something about how current polling might play out. The market consensus is that a Biden win and Democrat clean sweep will lead to higher taxes and regulatory risk for a large number of corporates, which will hurt equities.
There are however plenty of other ways in which the market might like a Blue-nami, from pragmatic trade policy to combined loose fiscal and monetary policy.
Could Biden open up trade with China again? The Democrat candidate is taking a hard line on China – which is playing well with both sets of voters – but will he become more emollient once in office?
Tony Blinken, a senior foreign policy adviser to Biden, said fully ‘decoupling’ with China as urged by Donald Trump is ‘unrealistic’ and ‘counter-productive’. Biden will instead reset ties with China while seeking to redress unfair practices on trade and IP. However, it will be difficult for Biden to withdraw Trump’s tariffs immediately, without gaining significant concessions.
Biden has to play the hand Trump dealt, but he might seek to drive greater consensus with China and work out a more pragmatic trade policy.
Biden may not have expressed much support for Modern Monetary Theory – in fact he was once a fiscal hawk in the old style – but under a Democrat Congress and White House there would be no rush to reduce the deficit.
In fact, Biden’s economic stimulus plans entail more borrowing. Whilst it is a stretch to suggest that Biden is a supporter of MMT, the economic and social backdrop has changed drastically in recent years and it is gaining traction in more corners of the Democrat machine.
Moreover, the Fed’s recent average inflation targeting shift opens up a new front for MMT proponents in explicitly pushing full employment as the primary goal of monetary policy.
At Jackson Hole the Fed announced a policy shift that ought to have a material impact on expectations around rates and inflation. The Fed is taking a more practical approach than in the past when it has been guided by theories about maximum employment, the Philips Curve and inflation.
Instead of saying that the economic outcomes need to fit its models – which have always been nothing more than a best guess – it will let the outcomes drive the policy. Some would say this is a step towards fully embracing MMT, even if Powell has been against this approach in the past.
The fact is that the crisis has thrown MMT from economic theory to economic practice without any real debate. Powell has embraced a central tenet of MMT – why should millions of people be thrown on the economic scrapheap and left unemployed as the price to pay for low inflation.
Under a Democrat-led Congress and White House, MMT proponents will gain a louder voice, with implications for federal economic policy.
Overall, whilst Biden’s tax policy might be tougher on Wall Street, trade and monetary policy could be easier. But it is not quite so straightforward as that. With polls close in the key battleground states and huge uncertainty over the potential impact of postal votes, it is currently difficult to put a price on any outcome, which in turn makes it hard to trade the election per se.
Going long or short based on the outcome is far too simplistic and you could just as easily call it wrong as get it right. What we can say is that the pandemic, the economic recovery and the monetary policy response are longer term going to matter much more. And so, all else being equal is far too simplistic a view to take in what’s a very complex situation.
Will the election outcome be contested?
The only thing the market wants is to get the election out of the way – the only real danger would be a long period of legal disputes post-election, but again this ought only to create volatility at the time and would eventually be forgotten once it all shakes out.
Veiled threats by Trump to not accept a Biden win are probably over-analysed. The Supreme Court (and Secret Service) would see to that. It turns out the most antagonistic election in a generation for the people of America might well end up merely a short term ripple when it comes to markets, given everything else they have to contend with in the long term.
With 40 days to go, the race is tight and in the major battlegrounds it is too close to call. Markets will be volatile and dislocations will occur that present opportunities. The best approach is to be agile enough to contend with both outcomes and no clear winner on the morning of November 4th.
You can follow our election coverage here.
Congressional Elections: Why do they matter?
While the race for the White House has received outsized attention, developments such as the failure to reach a new coronavirus relief bill and the looming threat of a government shutdown have heightened the stakes in the battle for control of Congress.
The House of Representatives looks firmly in the hands of the Democrats after the inroads they made in the 2018 midterms. Control of the Senate is therefore crucial. It’s currently in Republican hands and the Democrats would need to win four seats of the twenty-three up for grabs in order to gain an overall majority.
With Biden ahead in the Presidential polls, can the Democrats feel confident about the Senate?
With party now trumping candidate, the general momentum towards the Democrats should give them some hope. 2016 was the first year on record where every single state holding Senate elections voted for the same party for Senate as for president.
It’s no longer the case that voters split their ticket when they go to the polls. For example in 1980, despite Republican Ronald Reagan winning the White House, 12 of 31 Senate seats went to the Democrats.
Now though, the electorate is so polarized that party dominates across elections. If you voted Trump, you vote Republican across your ballot paper.
This means state-wide elections have increasingly been nationalized: Senators struggle to separate themselves from their national parties. This has been exacerbated under President Trump, where almost every Republican Senator has embraced him of fear of losing his conservative base – this is especially the case for the Republican Senator in Arizona, Martha McSally, who has pivoted to the right and linked her fate inextricably to Trump’s.
Rare candidates, like Maine Senator Susan Collins, have been able to maintain an identity distinct to the national party’s and keep split-ticket voting alive – but even Collins’ long-time local reputation as an independent, in a centrist state with a history of electing moderate women, is under threat for her polarizing pro-Trump voting record. She backed Brett Kavanaugh for his confirmation to the Supreme Court, in support of her President – and saw her popularity with female voters plummet.
Replacement for Ruth Bader Ginsburg becomes key election issue
With any coronavirus relief unlikely to pass before the election, control of the Senate will be crucial to any alleviation of the recession. This has been exacerbated by the death of Supreme Court Justice Ruth Bader Ginsburg. Party politics will now be bogged down in finding her replacement, rather than finding a fiscal compromise.
While Trump has made this a key issue, going as far as releasing an unsurprisingly political list of possible appointees, Biden has in turn also made this a focus of his candidacy, promising to nominate a historic first: a black woman. Given the increasing frequency of constitutional hardball around Supreme Court confirmations, control of the Senate will be a prerequisite to a successful nominee.
Given that the states in the Senate up for re-election are very Republican, this development will energise the base, reducing the likelihood of a Democratic majority.
However, on the Presidential level, the blue wall which deserted Hillary Clinton in 2016 looks likely to be rebuilt, given the intensely partisan nature of the battle to come. Mitch McConnell should be pleased by this weekend’s news, Donald Trump should not.
With both sides becoming more entrenched the elections look set to deliver a split between the legislature and the executive. With a more polarized Congress, key platform items promised by both candidates will be tougher to achieve. Expect partisan investigations and tense hearings to persist no matter who wins.
Blue-nami or Red Wave? How the US election result could impact markets
How will the US Presidential Election impact markets? Will there be Democratic sweep of all three houses; the White House and both houses of Congress? Or can Donald Trump defy the pollsters and hold on for four more years?
Whatever the result, there is sure to be an impact on financial markets. We’ve put together all the potential outcomes and how these might impact the US dollar, S&P 500 and Treasury yields in a handy guide – you can find yours today in platform message centre.
Election2020 quick briefing: Trump catches up, markets price for pullback
- Trump catches Biden in betting markets
- Polls narrow further as race tightens
- Options markets show concern
September 2nd saw an important development as betting markets turned in favour of Donald Trump being re-elected. The RCP average showed Trump +0.1pt over Biden at 49.8 to 49.7. Whilst clearly too close to call, the speed at which Trump has narrowed the gap shows how quickly things can change.
Betting markets are not, however, the same as polls. They are only market participants’ best guess at what the outcome will be.
US Presidential Election polls tighten as Trump eats into Biden’s lead
But polls also show a tighter race. Our US election poll tracker, which is powered by data from Real Clear Politics, has come in sharply. On a national level Trump is polling better than at any time since May and has eaten into Biden’s clear lead, which remains strong.
However, looking into the key battlegrounds where we know the fight will be bitterest and where it really counts, the lead Biden has is also narrowing and now well within the margin for error area. The latest RCP data shows Biden at +2.6 in the top battlegrounds, having been more than +6pts in July. Trump currently stands on 45.4 vs Biden’s 48.
Vix signals heightened election nerves
The tighter race is being displayed by more implied volatility in options markets for the S&P 500 than the stock market itself is showing. We have talked in the last few days about the Vix moving steadily higher even as the SPX rises – futures again pointing higher today after Tuesday’s record close.
This is the first red flag. The second is the term structure of the Vix futures curve which shows significant increase in expected volatility come Oct and Nov with a sharp 20% contango between the front and back months. Compare for example the CBOE Volatility Index Oct 2020 close at 33.51 vs the front month (Sep) at 28.35. Nov traded at 31.80.
This contango in the Vix is at odds with the general grind higher we are seeing and signals genuine anxiety among investors that the election will create the conditions for pullback.
Our Trump20 Blend – comprised of stocks seen as being most exposed to changes to corporate tax rates – is up but has lagged the broad market in recent days, whilst the dollar has softened despite a decent recovery on Wednesday.
Funnily enough, whilst the implied volatility is elevated around the election, all else being equal Trump’s low-tax, low-regulation agenda ought to be more positive for the stock market than a Democrat clean sweep would be. What this increased volatility may represent more is in fact investor fears about a disputed election result, which would considerably dent risk appetite going into the end of the year.