TRUMPS HEALTH SCARE SENDS JITTERS THROUGH THE MARKET
Last week culminated in a correction on US equities as Donald Trump’s positive coronavirus test stoked the political uncertainty one month before America goes to the polls on 3 November. The sitting president’s state of health is complicating the head-to-head battle for the White House. Previous to this news, the first televised debate between the two candidates was marked by personal insults traded on both sides, with the underlying issues – such as measures to help the American economy – barely touched on. Opinion polls currently give Joe Biden an 18-point lead, at 59 to 41.
The global economy continues to recover, albeit moderately. In the US, the September jobs report was disappointing, with less than 50% fewer positions created compared with the previous month (661,000 versus 1,489,000). Republicans and Democrats remain at loggerheads in Congress over whether a new fiscal stimulus package should be introduced, which is another reason why investors should be cautious. The Democrats would like to inject USD 2.2 trillion to help families, schools, restaurants, airlines and aviation workers. This is far too much for the Republicans. If the two sides reach an agreement before 3 November, this could act as a catalyst for stocks – as would the announcement of a vaccine breakthrough. On that point, one pharmaceutical company working on a vaccine, Moderna, has announced that it is far from ready.
Investors seem relieved by the positive news about the President’s state of health. He was allowed to leave the hospital for a brief moment so he could take a car ride and wave to supporters. Yet their focus is still the rising number of new Covid-19 cases, with further lockdown measures mushrooming all across the globe, from New York to Paris.
On the macroeconomic front, the week began with Eurozone services PMIs, concerning which the overall figure was in line with expectations at 48. Italy surprised positively, with the headline 48.8 versus the expected 46.6.
As we know, central banks have committed to keeping rates low for a long time. Consequently, record-breaking corporate issuance has been seen in the US as firms lock in the cheaper refinancing terms. Government bonds also remain in high demand, particularly in Europe, ahead of prospective further measures from the ECB. The yield on Italian ten-year BTPs has sunk to an all-time low of 0.79%. In Spain, the ten-year bond yield is down at 0.23%.
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