Biden is congratulated by world leaders as Trump remains firm on challenging the legality of the results.
On the surface, a Biden win seems to be bullish for stocks and bearish for the US Dollar as we see equities rising across the board, while the USD is falling. While Biden’s policies are perceived as negative for stocks, markets may be factoring in that a Republican controlled Senate will derail his tax hikes and expected re-regulation. However, this is highly unlikely as there should be enough republican support in the Senate willing to side with the new administration.
In reality, both Trump and Biden are relatively insignificant as the The FED remains the only game in town; - With the attention soon turning to Powell’s replacement and how much more dovish he or she is likely to be.
USD
The USD continues to weaken as we anticipate what Biden Administration economic response to Covid will look like and any further lockdowns could could expedite the need for an even greater Fiscal Stimulus. Inflation figures due out this week Thursday ought to be closely watched.
We are cautiously optimistic on the non-farm payroll numbers reported last Friday as the US added 638k jobs versus a 575k estimate, with the official unemployment rate falling to 6.9%. Lower than expected manufacturing jobs, indicate a very soft recovery and the jobs that have been regained could be permanently lost as the initial enthusiasm in the leisure and hospitality industry is faced with further lockdowns and uncertainty.
The next two months needs to be approached with caution as a long drawn out litigation period over the results was initially forecasted as the worst election outcome for stocks which could halt the rally and result in USD recovering its losses. Worth noting that Bush v Gore took 45 days to settle as democrats refused to concede in the 2000 election until a US Supreme Court decision overturned the Florida Supreme Court ruling to manually recount votes in four disputed counties. Resulting in all 25 of Florida’s electoral votes to be awarded to George Bush, with Al Gore reluctantly conceding the race on December the 13th.
GBP
While the GBP continues to gain against the USD fast approaching the 1.32 level, the Pound gave up ground against the majority of its significant peers with GBP/AUD in particular falling to 1.80 from a high of 1.85 at the end of October.
As reported last week, the Bank of England’s Monetary Policy Committee voted unanimously to keep the base rate at the historical low of 0.1% (where it has been since March) and also voted ted to increase QE by an extra £150bn bringing the total stock of UK government bond purchases to £875bn.
As we begin another lockdown the extension of the furlough scheme to the end of March 2021 and downward revisions for Q4 2019 GDP growth are expected to keep the Pound subdued.
Although it may seem unlikely in the very near-term, any positive news on Brexit negotiations could lift the GBP as British negotiators indicate that both sides are showing goodwill to progress towards a trade deal.
EUR
The Euro has made aggressive gains against the USD in particular with European equities rallying on the back of a Biden win, relieving pressures on trade negotiations between the EU and the US.
European markets look more optimistic today on news that a 90% effective COVID Vaccine could be approved in the not too distant future, although further lockdowns across the single market, which have not yet been priced in could dampen this EUR rally.
ECB members are due to speak this week which should provide some indication on further stimulus measures that we are likely to see in December