Market Commentary - November 5, 2020
Despite a victor yet to be decided, American democracy achieved a monumental feat with highest voter turnout rate (67%) in more than a century. The current tally stands at 71,825,845 for candidate Biden and 68,258,563 for President Trump. As vote counting progressed through the second day, battleground states Wisconsin and Michigan flipped in favour of Biden, calling a 253 electoral lead ahead of Trumps’ 214. The most probably road to victory for the former vice president is via either Nevada or Pennsylvania whilst the incumbency has an uphill battle to win all remaining battleground states to retain a second term. In any case, the much-anticipated blue-wave never did eventuate and with a divided government expected, a Republican controlled Senate and Democrat majority in the House. The next four years may as well be gridlocked.
Coming into Asia, global indices and futures took a breather from yesterday’s frantic price action which ultimately saw Wall Street make significant headwinds. The prospects of a “do-nothing” government left investors favouring defensive tech stocks in light of cyclical companies that would be benefit from a much elusive stimulus package. Nasdaq rose 4.5%, the S&P500 up by 2.3% and the Dow lagged posting 1.4%.
Figure 1 (Source: IS Prime): USDCNH daily chart : Demand for China's yuan resume as a Biden win is seen favourable to trade ties and in turn propel economic growth.
On the heels of a tight election race, European markets followed similar movements with the STOXX and CAC outperforming by 1.8% and 2.3% respectively. Biden’s statesmanship demeaner compared to Trump’s brass approach hopes to reinvigorate once healthy trade relations between Europe and the U.S. Rebuking the administrations action to pull out from the Paris climate change accord, Biden has pledged to re-join immediately after being sworn in.
Risk-on sentiment saw investors shy away from the U.S. dollar as election results round the final corner. Though the pound underperformed after a media report announced the Bank of England will consider negative rates in Thursday’s policy decision. The Turkish lira attempted to break 8.5000 two days running only to be foiled. Thus far policy makers have fended off growing calls for an emergency rate move to keep the lira in check. Mexico’s peso heads towards an 8-month high as trade and infrastructure policy would become more favourable under Democrat’s administration. Likewise, China’s yuan exhibits its’ highest volatility since 2015 eventually settling at 6.6233. With an on-going trade war, a Biden win would see more moderate rhetoric towards China.
Headliner to Review
- US Final Services Purchasing Managers' Index (PMI) increased from 56.0 to 56.9. ISM service PMI dropped from 57.8 to 56.6. The reading indicates the services sector grew for the 5th consecutive month after contraction for two months. The reading above 50 percent indicates the services sector economy is generally expanding. It seems the business activity was growing in October, which indicates that the US economy continued to recover at the fourth quarter.
- ADP Non-Farm Employment Change in the US dropped from 753k to 365k, which was much worse than the forecast 650k. Private sector employment grew much less than expected due to the increasing cases of coronavirus infections.
- Trade Balance in Canada dropped from -3.2 billion to -3.3 billion, against the forecast of -2.2 billion. However, the good thing is that trade conditions are improving since quarter 2 amid the pandemic.
- US Crude Oil Inventories decreased by 8 million barrels, compared with previous figure of 4.3 million increase. Oil inventories are about 7% above the five-year average.
Headliner to Watch
- On-going ballot counts will leave America’s Presidential elections result withheld. Of the called states thus far, candidate Joe Biden leads President Donald Trump 253 to 214. Hopefully by Friday an indisputable winner will emerge victorious as most votes is expected to be counted by then.
- The BOE is expected to increase the asset purchase program today by 100bn whilst leaving policy rates unchanged. Though media rumours of exploring negative rates is said to be discussed by MPC members.
- The FOMC is expected to leave monetary policy unchanged as with tradition during a U.S. election month. Despite an uncontained outbreak in cases, the administrations approach to continue keeping the economy opened has supported America’s rebound.
- U.S. unemployment claims expected to edge lower from 751K to 740K.
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Topics: Market Commentary