Market Overview – 27/10/2020

The US Presidential Election will continue to dominate markets this week against a background of rising pandemic related hospitalisations, especially in Europe where a second wave is in danger of overwhelming the healthcare infrastructure forcing politicians to impose more stringent lockdowns once again.

Beyond the gloomy headlines the economic data being reported is quite strong and shows little sign of stalling, especially in the US where jobs, housing and retail sales have surprised on the upside with better than expected re-hiring rates more than offsetting the loss of income from fading pandemic benefit payments.

This week will see the release of Q3 GDP numbers in the US and Europe which will show a strong rebound from the deep contractions last quarter. Few economists are allowing for any meaningful impact from a second wave dip in Q4 which would delay a return to pre-pandemic levels. Government fiscal stimulus budget talks are in the news with time fast running out for a pre-election US agreement thereby delaying any benefit until 2021.

This week Europe will discuss plans to reduce the fiscal stimulus in 2021 but – to put this into historical perspective – the 6% deficit is still double the Maastricht ‘limit’. There are some new hopes that a Brexit trade deal with the EU is still possible which has helped to support sterling. Central banks have been out of the limelight recently so the ECB meeting later this week will likely be examined for further potential stimulus. Certainly the pricing in money and bond markets suggests rates will remain very low for a very long time.