With this post we’re coming back to usual publication of our GlobalAlphaSearch.com Weeklies after a little break. In general the equity markets had a pretty positive week. The sentiment was not even distorted by the US politicians, who keep quarrelling about further stimulus.
The political front will most possibly be geting hotter every day now into the elections due on the 3rd Nov. Most market analysts agree that this event is now by far the biggest risk to the markets. Most also agree that the reelection of the incumbent president would be better for th markets, because of expected new bills supporting the corporate world. But the latest polls show a falling support trend to Mr.Trump vs. the Democratic candidate Joe Biden. The latter is generally expected to be less sympathetic with Wall Street and corporations. Time will tell. Recent study by Liberum, a UK-based investment bank, shows that since 1947, the S&P 500 has posted a total annual return of 10.8% under Democratic presidents, versus 5.6% under Republican presidents. This is a pretty surprizing outcome actually, as Wall Street generally favors Republican presidents’ drive to cut taxes and reduce government spending. Some increased volatility around the election date is surely to be expected. Let’s move on to last week’s events…
-> The week kicked-off on a high note on Monday, but the sentiment was spoilt by President Trump on Tuesday, as he announced on Twitter that he instructed his reps to stop negotiating any further stimulus until after the elections. That drove Dow down almost 400 pts and SP500 and Nasdaq slid over 1% each.
-> Meanwhile the Fed did its job and Chair Jerome Powell repeated on Tueasday that further agressive fiscal stimulus is absolutely necessary. He underlined that the recovery has been quicker than expected so far, but the risk of “overdoing” with stimulus is small and loose policies shall be continued.
-> The very next day we heard Trump say “The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business.” Hmmmm…Wall Street read it as a sign that maybe, if not the big bill, the House and Senate will at least agree on a smaller targetted bill. Expect more of that in coming weeks. Politics will dominate the headlines, and the markets will most possibly swing accordingly as well. On Wednesday the major averages regained all the Tuesday losses and built ground for for the rest of the week.
-> On Thursday and Friday the positive sentiment continued, driving equities higher steadily. Fixation around the fiscal stimulus is very high from how I read it and there’s not much else investors seem to care about these days. Effectively the US equities had the stronger week in a few months time.
-> Effective weekly index changes: S&P500 +3.8%, Nasdaq +4.6%, EuroStoxx600 +2%, DAX +2.9%, Nikkei225 +2.6%.
Other markets events:
-> Bonds: the US yield curve (10y-FF) keeps steepening recently driven by fiscal stimulation expectations and currently stands around 70bps, German curve (10Y Bunds-3M) at 0.9 with 10Y Bunds at -0.52%. High Yield Spreads stable around 5.
-> Commodities (ex oil): Gold keeps regaining ground after 2 month of consolidation and rose 1.3% this week to trade back above $1900. silver was up as much as 5.8% even.
-> Oil: up 5.2% on week.
-> Currencies: DXY (Dollar Index) -0.8%% on week, EURUSD +1.0%.
Major macro events: (times are CET):
Next Week’s major macro events:
Disclaimers: None of the ideas, views and thoughts presented here shall ever be taken as a recommendation to buy or sell stocks,bonds,FX,commodities or any other financial instruments as stated in REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC or the Regulation of the Polish Minister of Finance of 19 October 2005 on information constituting recommendations regarding financial instruments, their issuers or exhibitors (Journal of Laws of 2005, No. 206, item 1715) or the Polish Act of 10 February 2017 amending the act on trading in financial instruments and some other acts. The article is for educational reasons and purely presents private views of the author, thus the author shall not be claimed eligibile for any losses of a third party resulting from trading activities based upon this article. The author uses his best knowledge and data from sources believed to be reliable, but makes no representations as to the accuracy of the data.Full Disclaimers&Liability Limitations page.