How the U.S. Election Non-Result is Affecting the Markets Analysis - 5th November 2020

How the U.S. Election Non-Result is Affecting the Markets Analysis – 5th November 2020

Today’s Market Outlook

European stocks advanced Thursday, extending gains as traders reacted to the possibility of a divided U.S. government.

On Wednesday, the Stoxx Europe 600 SXXP, rose 1%. The French CAC 40 led the national indexes with a 1.3% advance.

Futures on the Dow Jones Industrial Average YM00, rose 325 points (1.07%), after the 367-point gain for the blue chips DJIA (+1.33%) on Wednesday.

Former Vice President Joe Biden is leading in the Associated Press electoral college count, needing only Georgia, North Carolina or Pennsylvania to defeat President Donald Trump. At the same time, the AP tally on the U.S. Senate is deadlocked at 48. The comment from Sen. Majority Leader Mitch McConnell of a possible stimulus deal by the end of the calendar year also helped financial markets.

Of stocks on the move, Societe Generale GLE, rose 5% as the French bank reported a third-quarter profit of €862 million and lifted its capital ratio outlook for the year.

The Bank of England meanwhile extended the size of its quantitative easing program by £150 billion as it forecasts the U.K. economy to contract in the fourth quarter. England’s new one-month lockdown starts Thursday.

The unanimous Bank of England decision kept interest rates at 0.1%, and the extension of its quantitative easing program brings the size of its government bond purchase program to £875 billion. The BOE also has a £20 billion corporate bond purchase program.

“There are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak,” the central bank said.

The central bank forecasts around 5.5 million employees to be furloughed in November.

And while it expects the economy to pick back up again in the first quarter of 2021, it said the economy would nonetheless be “materially lower” than the fourth quarter of 2019, as the country departs from the European Union’s trading area.

The pound vs dollar – GBPUSD – moved higher by 0.24% after the decision, rising to £1.3019.

And across the pond, the U.S. election non-result is burnishing Big Tech’s safe-haven credentials. Stocks like Facebook rose after the inconclusive early vote counts, outperforming other sectors. Likely paralysis in Washington will make the technology giants safer from aggressive antitrust action. Also the expectation that the Democrats will not rule the Senate also drove Tech giants’ shares up.

The lack of a clear winner in Tuesday’s vote may cause weeks of uncertainty and President Donald Trump’s threat to contest the election up to the Supreme Court is potentially incendiary. U.S. 10-year Treasury yields fell over 10 basis points to around 0.8%, perhaps reflecting a reduced likelihood of a Democratic sweep and a massive stimulus package. Yet the Nasdaq 100 Index of technology stocks rose over 4%!

It’s not the first time relatively risky technology shares have provided a safe harbour. After an initial fall as Covid-19 took hold in March, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google-owner Alphabet – bounced back more quickly, outperforming even gold, the perennial safe asset. They are up 50% year to date on average, versus the yellow metal’s 25% rise and the S&P 500 Index’s 7% gain.

That outperformance in part reflected the companies’ business models. Lockdowns prompting people to work from home, shop online, and binge-watch TV have spurred demand for Big Tech products. While financials, industrials, and oil and gas groups have all seen 2021 earnings estimates drop markedly, FTSE Russell research shows tech-sector forecasts have barely budged.

Today’s High Impact Events

The times below are GMT+2.

Tentative – EU Economic Forecasts

Potential instruments to Trade: EUR Crosses.  

14.00 – U.K. BOE Monetary Policy Report, MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate & MPC Asset Purchase Facility Votes

  Potential instruments to Trade: GBP Crosses.  

15.30 – U.S. Unemployment Claims

Potential instruments to Trade: USD Crosses & Gold.  

16.00 – Gov. Board Member Maechler Speaks

Potential instruments to Trade: CHF Crosses.  

16.30 – German Buba President Weidmann Speaks

Potential instruments to Trade: EUR Crosses.  

21.00 – FOMC Statement & Federal Funds Rate

Potential instruments to Trade: USD Crosses & Gold.  

21.30 – FOMC Press Conference

Potential instruments to Trade: USD Crosses & Gold.  

These events have the potential to influence the markets which means there is plenty of trading opportunities. 

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