Global equity markets gained strongly over the course of last week, although market gains tailed off into Friday’s close. The S&P 500 index and the Nasdaq ended the week up 7.32% and 9.01% respectively. Most of the gains came post the US election despite no winner being officially declared into Friday’s close as vote counting continued. However, as the postal votes were counted Biden looked to be edging towards victory. The ‘blue wave’ failed to materialise with the balance of power in the Senate to be decided in a January with a rerun of the two Georgia Senate seats as candidates failed to take more than 50% of the votes. This outcome suggests less scope for the Democrats to push through a large fiscal stimulus, Democrat driven tax rises and for regulatory changes within the technology sector. Thus, markets took the outcome positively. The tempering down of stimulus expectations was positive for USTs which rallied strongly as the results emerged although they conceded some ground into Friday’s close on the release of a stronger than expected set of October non-farm payroll data. The UST 10-year yield compressed 6bps to end the week at 0.82% having reached a closing yield of 0.76% on Thursday. Over the week the UST yield curve flattened with the 2s30s spread tightening around ~6bps over the week to ~144bps. Credit markets broadly rallied in response to the election result.
Economic data-wise, Friday’s US non-farm payrolls came in stronger than expected with 638k jobs added and the unemployment rate fell to 6.9% while the labour force participation rate picked up to 61.7% from 61.4% the prior month. This followed a strong October ISM manufacturing reading of 59.3 (versus expectations of 56) earlier in the week. The October ISM Services indicator came in below expectations but at a reading of 56 still remained firmly in expansionary territory. The FOMC meeting was somewhat overshadowed by the ongoing election drama, particularly as no change was made to monetary policy. There was little in the way of language changes in the post-meeting statement from the FOMC, although they did acknowledge that the economy continues to struggle noting: ‘Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year’. At the press conference Powell opined “We’ll have a stronger recovery if we can just get at least some more fiscal support.” Elsewhere, in response to the latest lockdown and a deterioration in the outlook, the BoE increased its asset purchase program by £150bn to £895bn and the chancellor Rishi Sunak extended various aspects of the furlough scheme.
Over the weekend, Joe Biden moved ahead as votes were counted in a number of key states and after Associated Press declaring he had secured sufficient electoral college votes to win he addressed the nation calling for unity as the next President elect, although Trump has yet to concede and continues to pursue legal challenges in a number of states. In the week ahead, the path of the covid pandemic will continue to be a focus as cases continue to rise in Europe and the Danish covid-mink cull adds new concerns. With much of Europe in second lockdowns and cases continuing to rise in the US with daily infections exceeding 100,000 cases per day investors will continue to monitor developments closely. Central Bank speakers include BoE Governor Andrew Bailey and BoE Chief Economist Andy Haldane. Christine Lagarde is due to speak on Wednesday at an ECB forum on Central Banking and Jerome Powell and Andrew Bailey are also expected to appear at this event. Fed speakers include Loretta Mester, Robert Kaplan, Eric Rosengren, James Bullard and Patrick Harker while Randal Quarles is due to appear before the Senate Banking Committee. Central Bank meetings this week include the Bank of Mexico and RBNZ. Data-wise, key releases include the US CPI and PPI data along with the preliminary reading of the University of Michigan Sentiment indicator for November. In Europe, the German ZEW survey for November is due for release on Tuesday along with industrial production data for September for France and Italy. China released a strong set of trade data over the weekend with October exports up 11.4% yoy, imports up 4.7% yoy and the trade surplus widening to USD58.4bn. Inflation and credit data are also due over the week. UK 3Q GDP data is due for release on Thursday although with the latest lockdown investors are more concerned with Q4 along with the state of Brexit talks. The latter are set to resume this week following a phone call at the weekend between European Commission President Ursula von der Leyen and Boris Johnson: November 15th has been touted as the last date for reaching an agreement to allow time for ratification by both parliaments.