News & Analysis

Week Ahead: 2020 US Election Remains the Key Market Theme

October 13, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

After a wild last week where markets swung from risk-on to risk-off sentiment following the back and forth chaos on stimulus, the attention is expected to remain highly geared towards the US election outcome.

Equity Markets

Risk sentiment will likely remain fragile on US stimulus negotiations, US election outcome, Brexit negotiations and various forms of lockdown restrictions. 

Democrats and Republicans

As per recent polls, former Vice President Joe Biden maintains his lead over President Donald Trump in the presidential race. The incumbent President is mostly falling behind because of his handling of the coronavirus pandemic. Market participants are thinking that a contested US presidential election is becoming less likely fuelling expectations of a Biden win and a unified government. 

Stimulus package

The US stock market has remained underpinned by the stimulus gridlock as investors note that more can only be done through fiscal support following the Fed’s recent comments. Under any presidential campaign, tax policies are the primary factor for the markets because of its direct impact on corporate valuation. The Republicans are supposedly considered as more “market-friendly” compared to Democrats. 

 

However, we have seen that there are higher market returns under Democrats as both the combination of higher taxes and government spending stimulate the economy and support the markets.

Stock Market Performance by President


Source: Source: MacroTrends

In a pandemic induced environment and leading up to the election date, the primary concern is about the stimulus package. It is becoming more and more unlikely that the Democrats and Republicans are going to agree on a big COVID-19 relief package before the election. There are growing hopes that a decisive Democratic win will bring greater stimulus which will boost stocks. However, investors will also likely monitor whether Republicans stage a comeback ahead of the election date.

Second Presidential Debate

The Commission on Presidential Debates has cancelled the 2nd Presidential Debate after President Trump refused to participate in a virtual debate. The next debate will likely be on October 22nd – the third and final debate before the election date. The US President plans to still go ahead with in-person events despite still being potentially exposed to the virus. 

US Corporate Earnings

The third-quarter US earnings season will kick off this week with major US banks. Investors will be able to see the performance of the banks in an era of low-interest rates. 

Various Forms of Restrictions

Europe sweeps a second wave that is prompting leaders to reimpose various forms of social distancing measures and lockdowns. Investors are likely to monitor the resurgence of the novel coronavirus and the measures being taken to gauge the severity of the lockdowns again.

Key Economic Data to Watch

In the FX space, major currencies were stronger against the US dollar which was under heaving selling pressure towards the end of last week. The hopes of stimulus have tamed down the demand for haven currencies.


Source: Bloomberg

The US Dollar – Inflation and Retail Sales Data

While the price action will likely remain driven by news on the stimulus front, Inflation and Retail Sales figures will be widely eyed to gauge the Fed’s on hold stance. 

The Antipodeans – Aussie Unemployment Data

The Antipodeans held their ground against a weaker US dollar. After the losses made following the RBA statement and the Budget, the Aussie dollar found some support on some upbeat data and the financial stability review. Ahead of the Budget, the RBA kept interest rates unchanged at 0.25% despite earlier calls for a rate cut. 

The employment data will be key in gauging the interest rate policy of the RBA for next month. 

The New Zealand dollar lagged against its peers, dragged by dovish comments from the RBNZ’s official that the central bank is actively looking into negative OCR. We expect the Antipodean currency to remain at the broader sentiment of the markets.

The Pound – Brexit Deadline

As the deadline looms, market participants will monitor the intensive Brexit talks. We expect the Pound to remain highly volatile driven by Brexit headlines and the rising number of cases in the UK. 

Commodities

Oil

The improvement in risk sentiment and Hurricane Delta brought some relief in the energy market despite much uncertainty on the demand outlook and bearish oil reports. As of writing, WTI Crude oil (Nymex) and Brent Crude (ICE) were trading around $40.08 and $42.28 respectively. 

Besides the usual weekly oil reports, the most relevant event for the energy markets this week will be:

  1. Tuesday: World Energy Outlook 2020
  2. Wednesday: Oil Market Report October 2020
Gold

Last week, the precious metal caught a breather on a weaker US dollar and the latest update on the US stimulus package. Gold traders will likely eye the stimulus talks and US election developments for fresh trading impetus.

Key Events Ahead

Monday

  • Foreign Direct Investment (China)
  • Haskel Speech and BoE’s Governor Bailey Speech (UK)
  • REINZ House Price Index (New Zealand)

Tuesday

  • BRC Like-For-Like Retail Sales, Claimant Count Rate, Claimant Count Change, ILO Unemployment Rate, and Average Earnings (UK)
  • Trade Balance, Exports, and Imports (China)
  • Harmonized Index of Consumer Prices, ZEW Survey – Economic Sentiment and Current Situation (Germany)
  • ZEW Survey – Economic Sentiment (Eurozone)
  • Consumer Prices Index and Monthly Budget Statement (US)

Wednesday

  • Westpac Consumer Confidence and HIA New Home Sales (Australia)
  • Industrial Production (Japan)
  • Industrial Production (Eurozone)
  • Producer Price Index (US)
  • BoE’s Haldane Speech (UK)

Thursday

  • European Council Meeting (Eurozone)
  • Consumer Inflation Expectations and NAB Business Confidence, Full Time Employment, Employment Change and Unemployment Rate (Australia)
  • Consumer and Producer Price Index (China)
  • Jobless Claims and Philadelphia Fed Manufacturing Survey (US)
  • BoC’s Lane Speech (Canada)
  • Autumn Forecast Statement (UK)

Friday

  • Business NZ PMI (New Zealand)
  • European Council Meeting and Consumer Price Index (Eurozone)
  • IMF Meeting, Retail Sales, Industrial Production and Michigan Consumer Sentiment Index (US)

By Deepta Bolaky
 @DeeptaGOMarkets

Tuesday, 13 October 2020 
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0 0.018 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0


Disclaimer:  The articles are from GO Markets analysts,  based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own;  should not be taken as either representative of or shared by GO Markets.  Advice (if any),  are of a ‘general’ nature and not based on your personal objectives, financial situation or needs.  You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice.  If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.

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