Financial markets are dominated by two pivotal themes: the Covid-19 comeback and prevarication in Congress over the next dose of fiscal stimulus. The number of positive test results is surging again in many European countries, which is stoking fears of renewed lockdowns – in France, to begin with. Correspondingly, the EU has called on its Member States to get a grip ‘immediately’ in the face of the latest outbreaks. Investors are equally worried, resulting in a sharp fall in the Eurostoxx 50, which is back testing its June lows. Cyclical stocks in particular have taken a bashing, while renewed dollar strength has dragged down the price of precious metals.

Who knows where we are heading? Multiples are looking stretched, as illustrated by the correction hitting tech giants. The US elections are nearing, and Washington and Beijing remain at loggerheads. In short, the atmosphere is no longer conducive to runaway rallies on stock indices. Yet a glimmer of hope was seen on Friday amid the talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over a possible new dose of fiscal stimulus before the elections.

Fed Chair Jerome Powell said the world’s largest economy needs fresh stimulus if it wants to lock in the recovery, pointing to rising defaults among businesses and on mortgages. The Fed itself baulks at the idea of further monetary measures; as things stand, it plans to keep rates low until 2024, if required. In Europe, the Swiss National Bank unsurprisingly kept its benchmark policy rate at -0.75% last week, while the Bank of England is mulling the idea of negative rates. With rates set to stay low, the downtrend in European insurance and banking stocks has continued.

In the US, initial jobless claims showed no sign of improvement last week. In contrast, new home sales in August signalled brisk demand, rising by 5%. So the news is not all bad.

Donald Trump’s fast-track appointment of Amy Coney Barrett to the Supreme Court is seen as highly controversial. It will probably be ratified in the Senate, which has a Republican majority (43-47). The appointment comes on the eve of the first of Trump’s three televised debates against Democrat nominee Joe Biden. The odds suggest that the two candidates are neck and neck for 3 November. The sitting president – who said he will not go without a fight – wants to have one more Justice in his camp in case the election results are contested. It is estimated that 80 million Americans will use the postal ballot.
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