Core equity markets staged corrections last week, pulled down by concerns about the continuing pandemic and the renewed restrictions on business introduced in several European countries. A curfew was introduced in Spain and Italy, forcing bars and restaurants to close early. In the US, the number of daily cases skyrocketed over the weekend to upwards of 83,000, with a sharp increase in the less populated areas spared during the first wave.

Mild anxiety over the outcome of the presidential election is stoking volatility because of the implications for investors, particularly with regard to corporate taxation. The final televised debate between the two candidates was not particularly revealing with regard to their respective economic platforms. However, in the wake of his performance, Joe Biden is tipped to win. He remains ahead in the polls at 51.4% of the vote, even though the gap relative to Donald Trump (42.7%) has narrowed. Whichever man is chosen to be president, a bumper stimulus package is likely to be forthcoming. But should Joe Biden win the presidential election and the Democrats also secure a Senate majority, tax hikes could ensue, which could then hurt businesses.

Fears of recession in the third quarter in Europe are gathering pace according to recent business surveys. The services PMI fell sharply in France (46.5). In contrast, in Germany, the manufacturing PMI recovered to 58. Christine Lagarde, who heads up the ECB, which meets this Thursday, last week reiterated that the ECB remains ready to use all instruments at its disposal to support the economy. However, the market believes that no concrete measures will be announced before the December meeting. In the meantime, China’s economy continues to recuperate, boasting a sharp increase in exports and industrial production (+6.9% year-on-year in September). Chinese equities are likely to continue performing positively, especially as their weighting in world indices is increasing.

Generally speaking, corporate results in the US have not been as bad as expected, with earnings largely beating expectations. Financials reported by tech giants (Amazon, Apple and Alphabet) after the closing bell this Thursday are to be watched closely.

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