Joe Biden declared president-elect, stocks rally

US Presidential Election

Joe Biden has been declared president-elect, but Donald Trump is refusing to concede. Markets are not particularly fussed and see some clear light – relative clarity is providing a boost to risk assets.

Stocks enjoyed the best week since April, though there was some payback on Friday as traders consolidated gains.

The S&P 500 rallied 7% over the five sessions, but this did come after just about the worst pre-election week for stocks on record. Investors were shifting a lot of flow into lower volatility debt markets ahead of the election to reduce exposure to stock market volatility, and this is now unwinding back into equities.

In particular, the Biden White House and split Congress ought to mean lower rates, lower inflation and this benefits Growth stocks, and gold.

The dollar index has slumped to its weakest since September 1st put tried to rally early on Monday. A weaker dollar is supportive for gold, which broke out past $1,950. WTI (Dec) tracked sideways around the $38 mark.

Stocks in Asia rose, with the Nikkei up 2% and Hang Seng rising over 1%. Stocks opened firmer in Europe with the bullish trend asserting itself as Biden’s triumph seems all but assured.

The FTSE 100 rallied 1.5% to 6,000, whilst the DAX rose 1.7% to 12,700 and the Stoxx 50 returned to 3,250. US futures indicate Wall Street will open higher after a lacklustre session on Friday.

It would take a lot of big and unlikely legal victories for Trump to turn the result now. Recounts are likely as are multiple legal actions – but the lead for Biden is such that it would imply some enormous voter fraud in several states. Safe Harbor Day is Dec 8th, by which date all states need to have decided who’s won ahead of the Electoral College votes on Dec 14th.

The MSCI All Country World Index hit a record intra-day high this morning. A Biden win is seen to be much better for international cooperation, an end to the Trump-era isolation and critically, good for trade with the potential for a reset in transatlantic relations probably the most exciting aspect for investors. Whilst the Democrats won’t go easy on China, the relationship is expected to be steadier and escalation of tariffs seems less likely than under Trump.

According to weekend data Chinese exports jumped 11.4% in October, whilst imports rose 4.7% in USD terms. This was the best export performance since the pandemic and shows the recovery taking place outside of those countries where lockdowns linger.

It’s a good indicator that global demand is picking up in spite of pandemic restrictions in certain areas. This morning saw some decent German export numbers for September (+2.3%), but France’s economy is operating down 12% in November due to the lockdown.

After the relief rally, where next?

The Senate looks to be heading for Republican control, which removes a lot of the regulatory and tax overhang. Georgia run-offs will keep us unsure for a while longer, but the odds favour a very slim Republican majority in the upper house. Gridlock could be good for multiples and earnings longer term, but it’s not conducive to a large stimulus package right now.

And will Biden go for a more aggressive approach to containing coronavirus? We know that the greater the restrictions the greater the economic damage. Europe is enduring this reality again. A Biden win is probably good news for clean energy companies – the president-elect is committed to re-joining the Paris Climate Accord. Scottish Widows is offloading £440m in ESG unfriendly investments – the wind is blowing only one way.

Sterling was holding well above $1.31 but dollar weakness aside, the pound remains susceptible to a significant amount of Brexit headline risk.

Boris Johnson and Ursula von der Leyen said ‘significant differences remain’ in trade talks, citing fishing and the provisions for a level playing field. All the showboating and posturing should give way to pragmatism and the realpolitik of securing a deal before the New Year. The current ‘deadline’ is November 15th but talks could well extend beyond this. After tapping on 1.32 briefly early doors, GBPUSD dropped to 1.3140 by around 9am.

The FTSE 100 hit 6,000 and seems to have broken the downtrend. Next to 6,300, or will the downtrend reassert itself? The jump this morning marks a clear move off the 50-day simple moving average at 5,888 and the 100-day simple moving average at 6,011 offers resistance.

FTSE 100 performance fluctuating.

Stock markets consolidate gains, dollar close to September lows, Bitcoin fizzes

Morning Note

Some wise words this morning from one of the most exceptional and reliable performers on the UK market, Scottish Mortgage Investment Trust. In the long run, management write in today’s half-year report, stock market returns are driven by “a small number of exceptional companies”.

They add: “The progress of such companies is rarely smooth or linear. They have breakthroughs and they have setbacks. Sentiment in the market exaggerates the peaks and troughs, driving price volatility that is commonly mistaken for risk. When we believe we have identified an exceptional company that is pursuing a large opportunity, we look beyond this cycle of feast and famine. With a longer timeframe, such oscillations matter less, and the picture of compounding growth becomes clearer. Many, if not most, investments won’t turn out as we hope.

“However, for the companies that do succeed, the returns are transformational and they have a disproportionate impact on the portfolio. This is why we approach our task with optimism. It is more important to identify the factors that will allow a company to prosper than to enumerate the potential pitfalls along the way.”

SMT’s net asset value per share with debt at fair value (NAV) rose by 76% over the last 6 months, compared to a 24% increase for the FTSE All-World Index.

Over the last ten years, they’re up 674% vs 191% for the index. Management conclude the update optimistically: Opportunities for investing in companies building the future of the economy with capital and patience “remain plentiful”. They also note that investors should treat “confident pronouncements” with “scepticism”. Amen to that.

Investors moved to consolidate gains early on Friday after a very decent bump up in stocks over the last week, with European bourses in the red in the first hour of trade.

The Stoxx 600 is on course to rise 7% for the week, whilst US markets have posted similar gains as technology has risen strongly. The Nasdaq is up 9% for the week and the S&P 500 has risen 7% in four sessions. Futures indicate a weaker open in the US. The dollar has retreated to its weakest in over two months, whilst gold broke out to $1,950.

Votes continue to be counted in a number of key battleground states and whilst Donald Trump is pursuing legal avenues, his chances of getting anywhere appear slim.

So far courts have thrown out his appeals. Moreover, Joe Biden is closing the gap in those states still counting and these last bastions of hope for the President could also flip. We appear set for a Biden presidency and Republican Senate, which should mean less stimulus, less infrastructure spending and less uncertainty over regulation and taxes, which equals a positive situation for Growth stocks over Value and the big tech names that have dominated the US market for years.

The Fed left rates on hold and made no changes to the pace of asset purchases as chairman Jay Powell warned of the downside risks to the economy. In truth,the Fed was never going to do anything at this point and no one expected it to rock any boats. Nonfarm payrolls today but these are increasingly irrelevant against the backdrop of the pandemic, stimulus and the weekly claims numbers, but the release could still move the market at 13:30 GMT.

Bitcoin blitzed through $15,000 for the first time since the beginning of 2018 and came close to taking out $16,000 as investors rode a momentum trade that has been building up a head of steam ever since PayPal announced it would let users buy, sell and hold a variety of major cryptocurrencies. Bitcoin futures broke above $16,000. Two big things seem to be at work that are interconnected. Increasingly millennial investors are favouring Bitcoin within their portfolios as a diversification holding similar to people own gold. Given the scale of the gold market ($2.6tn in bars and coins + $240bn in ETFs) only a modest rotation out of gold would imply a significant increase in prices for Bitcoin from here. PayPal’s move has been super important. The more that businesses and payment processors, card providers and so on accept cryptocurrencies, the higher their value as a utility as a means of payment.

Reflation trade unwinding…maybe not. The dollar sank to the bottom of the recent range where the support has just about held. Bears will be eyeing a test of the September lows at 91.70.

 

How the USD is performing 06.11.2020.

Gold broke free from the descending trend line to the $1,950 area with a positive MACD crossover backing the move.

Gold performance 06.11.2020

Bank of England pulls QE lever, Biden close to victory

Morning Note

Easing ain’t as easy as it looks: The Bank of England increased its programme of government bond purchases by an additional £150bn.

This was more than the market was expecting and took the total stock of government bond purchases to £875 billion.

That said, the BoE had pretty well telegraphed this move yesterday when it decided to bring the decision forward from 12 noon to 7am – most pundits assumed that this meant a monetary policy decision of note that the BoE didn’t want to get entangled with the chancellor’s latest pandemic statement.

Interest rates were kept at 0.1% and the MPC voted 9-0 for the measures. There was no talk of negative rates, just mention of the risks to the currency being to the downside. That may be, but sterling rallied as there was no surprise rate cut and no mention of plans to take rates negative.

GBPUSD rose sharply from 1.2940 to above 1.30 after the announcement, eyeing near-term resistance peaks at 1.3050 and then the 1.3140 high at the peak of the ‘blue wave’ dollar selling on election night before the results showed a much tighter race than polls indicated.

Trump’s election chances hang by a mainly legal thread now that Joe Biden has secured Wisconsin and Michigan. Nevada resumes counting today with Biden having a tiny lead in the state and 25% of the vote yet to count – you think this would favour the Democrat.

Meanwhile, NBC projects that Nebraska’s 2nd Congressional District will swing it for Biden. Legal challenges from Trump are incoming in Wisconsin and Georgia but unlikely to be a material drag – excluding some attempts to block counts and question the validity of some ballots, the smooth transition of power was never really in doubt. But it’s clear there has been no Blue Wave.

The Democrats’ chances of flipping the Senate to Blue appear to have gone, though counting continues. America remains as divided as ever, with a Blue White House needing to work with a Red Senate, some of the more extreme tendencies of the Democrats will be handicapped. The worst of the volatility is behind and while we need to get through these legal challenges, a return to a Blue White House and Red Senate may result is a calmer policy situation (fingers crossed!).

It looks almost certain we will get the ‘So Mauve’ outcome from our election playbook (Biden win, Senate stays red). As detailed there, this implies a degree of gridlock in Washington, which ex-stimulus is not always a bad thing for the market:

  • Less uncertainty over policy likely to support equities, particularly Big Tech, whilst a Biden presidency ought to see some degree of a reset with trade partners that would boost sentiment and corporate earnings.
  • Stimulus delays could create near-term volatility, but it would be in no one’s interests to drag their feet for long given any ballot box risk would be two years away.
  • Tax uncertainty removed = +ve for equity valuations, especially Growth
  • Improvement in trade relations with partners and China could see EM supported as well as European equities/currency – would also tend to boost US corporate earnings
  • Not as bad for the dollar as a Blue Wave result with trade reset likely to support flows, also less fiscal expansion a factor, but USD seen weaker in this outcome as part of broader downtrend.

US and European equities rallied Wednesday in the wake of the election and carried through with this positivity. Solid gains of 0.5% registered on the FTSE 100 taking the blue chip index above 5,900 and the trend indicates a push to 6,000.

There is clearly some relief in the markets that the election is (almost) behind us – as I’ve been saying the threat of a ‘crisis’ level disputed election (Trump refusing to leave office) was always overstated and a few days of court decisions won’t matter much for investors with a longer-term horizon, and it’s these flows that are driving things here.

The Blue Wave reflation trade clearly had to unwind – US 10 year yields have retreated to 0.73%, from achieving a multi-month high on election night of 0.945%. Financials fell, with shares in JPMorgan –3% and Bank of America –4%. Lower nominal rates also +ve for gold, with spot to $1,915 in early trade this morning.

Just to highlight how much Tech likes the result (i.e. no Democrat Senate to mess around with regulations and raise taxes, as well as no reflation trade to spark rotation out of growth to value), Nasdaq futures are up 10% from their Monday lows. Amazon and Alphabet jumped 6%, with Apple +4% and Facebook rallying +8%.

NASDAQ Performance

Risk bid on US election day

Morning Note
US Presidential Election

Dollar down, nominal yields up, risk bid: has the market already priced in a Democrat clean sweep? Equity markets braced for the election with a strong showing on Monday, recovering ground after last week’s drubbing, and extended gains on Tuesday morning. There is a strong bid for risk early doors, with stocks in Europe rising +1%, the dollar down ~0.5% to 93.75 from 94.30 at yesterday’s highs, and WTI crude oil (Dec) up +1% and touching on $38 as it continues to break out to the upside. The FTSE 100 has recovered 5,700 on broad based gains with only really ABF falling on a dividend cut. The mentality right now is to buy the dip ahead of the election.

 

Is this greater confidence about a Biden win, or simply a bit of buying on oversold conditions from last week’s decline? It’s hard to really say – the election looms and we are expecting volatility as results come through later. Certainly a clean result on the night is what markets are hoping for – whether it’s Biden (higher yields, Value positive) or Trump (Yesterday, the S&P 500 rallied over 1.2% to reclaim its 100-day simple moving average at 3310 by the close. Value sectors prospered and led tech, perhaps on expectations of a Biden triumph leading to stimulus and infrastructure spending.   

 

Voting in the US presidential election ends today – most ballots have already been cast. Watch for the early call from Florida – almost every president for the last 100 years has won this state and it remains too close to call. Biden leads in several key states and takes a 2.8pt lead in the battlegrounds heading into polling day. Now we turn to the results – be careful with exit polls – they don’t have the best track record. Polls in Florida close at 7pm EST (midnight GMT), so we should start to see markets moving after this on calls being made by pollsters and forecasters. From 8pm we start to get a feel for the rust belt states of Ohio, Pennsylvania, Wisconsin and Michigan – all states Trump needs to win. 3 of those 4 should do it if Florida goes red along with Georgia. But ensuring a clean picture of who’s won will be even more challenging this time due to the large number of postal votes. Delays will be inevitable, but it is unclear whether this is material – if Biden performs as the polls indicate it won’t matter much.  

 

Donald Trump has already suffered two defeats, after judges rejected Republican attempts to nullify thousands of early votes cast in Texas and Nevada. Mr Trump has already said he will throw his lawyers at Pennsylvania after the Supreme Court extended the deadline for mail-in votes. It tends to point to a real prospect of a disputed result if things are tight on the night. 

 

The Reserve Bank of Australia eased as expected with a 15bps cut to the cash rate to a new record low of 0.1%, whilst it also lowered the three-year yield target and its Term Funding rate to 0.1% from 0.25% as well. The RBA also pledged to buy A$100bn worth of bonds over six months as part of an expanded QE programme. Governor Philip Lowe stressed the RBA is not financing the government and that negative rates were “extraordinarily unlikely”. Nevertheless, the path of the global economic recovery remains patchy and the RBA may decide to expand its QE programme further still.  

Markets poised for US election uncertainty

Morning Note
US Presidential Election

Lockdowns across Europe seem fully discounted now – markets haven’t really reacted massively the UK government’s caprice. Stocks hugged the flatline in early trade Monday as all eyes shift now to the presidential election, with some bid actually coming through after the initial downtick. The elephant in the Oval Office is Donald Trump: a victory in the election this week for the incumbent would surprise just about everyone. I say this since strategists everywhere seem to be discounting the possibility. Some of the pre-election selling we have seen could be more about an expected Biden win and what that would do to tax and regulation. Polls show a healthy Biden lead for sure but are tighter in the battleground states. Moreover, there is likely a silent group of shy Trump supporters who would never admit to voting for the president. On the other hand, Biden has a clear lead in four key states – Wisconsin, Pennsylvania, Arizona and Florida, a new poll shows, which would see the Democrat through with ease. It’s still a contest though, and with states being called or mis-called on inaccurate exit poll figures throughout the election night we ought to prepare for some significant volatility over the course of the evening.   

 

The main thing Wall Street wants is to get the election out of the way and get some clarity. As such a contested election would present the greatest near-term risk to equities, which may be reflected partially by the Vix going above 40 last week. This is a level that needs to be watched, though returns post a spike like this tend to be positive. 

 

But investors may not get the result on election night. The sheer volume of mail-in votes in those states which require counting to only start from Nov 3rd (Michigan, Pennsylvania), could delay the result even without the risk of legal action. Donald Trump is clear he’s going to fight where he can, saying in reference to Pennsylvania: “The night of — as soon as that election is over — we are going in with our lawyers.” Now there is a very large difference between a delayed result and a contested result, but the latter would almost inevitably ensue from the former as it all centres on the legality of postal votes. The worry for investors is that neither side accepts defeat.

 

As detailed in our election playbook, in the event of a Democrat clean sweep, whilst it would generate a large amount of fiscal stimulus (+ve for stocks) the expected hike to corporate taxes and capital gains tax creates policy uncertainty and could generate additional volatility into the year-end as investors liquidate positions to realise returns prior to the tax rises. There is also chatter about a financial transactions tax, which would be a negative for risk. 

 

And, moreover, there is a key question that will remain unanswered this year if Biden cleans up: Will the gigantic stimulus that the Democrats will unleash flood the US economy with too much liquidity at a time of strong economic recovery, creating inflation and leading to monetary policy uncertainty? In other words, do we get so much fiscal stimulus that the Fed becomes cornered and is forced into hiking rates much sooner than planned?  

 

Stocks closed out a bad week on Friday in the red again, with the S&P down 1.2%. There was a decent bull rally into the close though to leave it 36pts above the low at 3,270. European stocks were mixed in early trade on Monday.  

 

The new lockdown in England is a big problem for some and good news for others – the slow recovery from the crisis just took a giant step backwards, but online will do well. Primark owner Associated British Foods warned it will suffer £375m in lost sales as a result of stores being closed here and across Europe in November, but this assumes Dec 2nd will be the day restrictions are lifted. If I were a betting man, I’d say it’s more likely to later, despite what the chancellor says. Shares fell 3%. Meanwhile Ocado shares jumped 8% as it raised its full year earnings guidance to £60m from £40m. This should be a positive for MKS but it’s lower this morning. Just as the first lockdown accelerated online shopping habits, the second lockdown will undoubtedly offers some additional near-tern support for Ocado stock. 

 

The US dollar remains well bid above 94 after breaking out of the October range and it looks to test the upside of the sideways channel formed by the September peak at 94.82. Dollar strength pushed cable back to 1.2860, with Brexit barely being mentioned right now despite the very tight timetable. Expect some headlines this week on that front to disrupt. We also have the Federal Reserve and Bank of England meetings to contend with. Lots of chatter around negative rates but the MPC is much more likely to deliver a QE boost to support the economy. The decision to lock down the economy in November gives all the cover the central bank needs to do more. Data like the nonfarm payrolls and global PMIs this week can be largely ignored now we’re clearly into a new phase of the pandemic lockdowns and the election will dominate.

US Election Playbook: 3 outcomes for trading the market reaction

US Presidential Election

Election Night Volatility

Volatility, as viewed through the lens of the Vix, has already risen sharply in the lead up to the election but has been largely because of the surge in virus cases, and lockdown measures in Europe in particular, weighing on risk sentiment.

As far as the election itself goes, I think Trump is closer to victory than the pollsters, bookies and financial markets believe, which in itself favours election night volatility as states are called one-by-one, and a big response early Wednesday when European cash equities open to we would assume some clear result.

What also favours a large swing in futures pricing and in some FX crosses will be the way in which calls on individual states are made. With some states processing the in-person ballots before the postal ones are counted, and with some states allowing postal votes to arrive after Nov 3rd (as long as they are postmarked by this date), we could get an inaccurate and uneven sample when the West Coast polls close.

If the polls are correct and show a comprehensive Biden victory, volatility would likely ensue as investors call their accountants to assess their holdings in expectation of much higher taxes. FX crosses to watch will be focussed in the EM space (USDMXN, USDCNH among others) as a Biden win is seen as particularly positive for those currencies.

Outcomes

We’ve included three potentials outcomes (the fourth variant: Trump wins and Senate turns blue has been omitted since if there is a Trump surge it’s hard to see the Senate going Blue).

A little history: The stock market has risen under both Democrat and Republican presidents – stocks don’t really care who’s in charge. Moreover, ongoing monetary policy support underpins the equity market valuations – the Fed is not about to remove the punch bowl.

Whilst longer-dated Treasury yields have started to rise after a period of stagnation this appears to be on the expected increase in the money supply and fiscal expansion which would accompany just about any of the results. We should note that yields are very much within tight ranges and any significant break free to the upside would require a serious bout of inflation (as previously argued this may be the consequence of a vast increase in the money supply).

Fiscal stimulus is coming over the hill whatever the result – the only exception would be a contested result which would of course tend to create heightened volatility and a slower path to stimulus. Fiscal largesse will make a significant difference and we would tend to think that a Blue Wave result would support the largest fiscal expansion of the possible outcomes.

A Biden White House and GOP Senate increases the risk of delay, particularly if some of the new senators don’t feel like voting for huge increase budget increases. A disputed election would need to be resolved in the Supreme Court and Trump has just scored a big win with his new justice.

Whilst a disputed result is possible and would cause the most volatility, it is a) being over-egged since postal votes should not make a big difference in the key states and b) it certainly won’t come to the point where Trump refuses to leave office. Leaving the unedifying and frankly undesirable prospect of a disputed result aside, we can look at the three main possible outcomes and what these mean for the markets.

Red Rum: Trump win, Senate stays red

  • Less stimulus – not the $3tn Heroes Act but something that is a little short of what the market had been hoping for. Removal of tax and regulatory uncertainty supportive of equity valuations, however.
  • Nominal yields down and real yields more negative favours gold + growth stocks + multiple expansion: more upside for the S&P 500 with the removal of the expected increase in corporate and capital gains taxes and reduction in policy and regulatory uncertainty.
  • Growth beats Value status quo
  • Dollar could outperform in the near term with a strong post-election euphoric bounce until stronger economic, monetary and fiscal trends are reasserted and drag on USD – however, trade tensions could be a headwind for USD bears.
  • Policies supportive of US shale and further drilling, increasing domestic supply. Less stimulus could be –ve for demand, therefore WTI prices could tend to fall, especially as it looks like the winter is set up for inventory builds. Global demand will matter more for commodities in general and even for oil there are greater forces at work than who’s in charge.
  • Reinvigorated Trump with Senate support would likely see the president up the ante on trade, which would tend to be negative for emerging markets and boost the USD. It could also be a negative for European equities and the euro.

So Mauve: Biden win, Senate stays red

  • Less uncertainty over policy likely to support equities, whilst a Biden presidency ought to see some degree of a reset with trade partners that would boost sentiment and corporate earnings.
  • Stimulus delays could create near-term volatility but it would be in no one’s interests to drag their feet for long given any ballot box risk would be two years away.
  • Tax uncertainty removed = +ve for equity valuations.
  • Improvement in trade relations with partners and China could see EM supported as well as European equities/currency – would also tend to boost US corporate earnings
  • Not as bad for the dollar as a Blue Steal result with trade reset likely to support flows, also less fiscal expansion a factor, but USD seen weaker in this outcome as part of broader downtrend.
  • Little impact on commodities – arguably less stimulus creates headwind to recovery but broadly speaking the global post-Covid expansion will matter more, as well as the relative weakness of the dollar.

Blue Steal: Biden win, Senate goes blue

  • It’s a reflation and redistribution thing – more stimulus = more spending + higher prices (tax reform nails the rich who have less marginal spending power than poorer folks)
  • Timing is everything: do tax hikes get applied instantly and retroactively – which could spark selling into the year-end before stimulus floods through in the spring of 2021.
  • Lots of stimulus is a +ve for stocks and favours Value stocks – less overall potential for the broad market but tilted in favour of Value again over Growth.
  • Remember the fiscal expansion is two-fold: Covid relief and massive infrastructure boost.
  • Rising nominal yields, steepening of the curve = bad for gold (unless and until inflation appears) + good for banks.
  • Expected hike to corporate taxes and capital gains tax creates policy uncertainty and could generate additional volatility into the year-end as investors liquidate positions to realise returns prior to the tax rises.
  • Higher corporate taxes and regulatory uncertainty increases risk premium for equities, whilst could see nominal yields rise and reduce the TINA appeal for equities.
  • Seen as more negative for USD with fiscal expansion and tax/regulatory regime weighing on demand for US equities.
  • Over the medium to long term, a Democrat clean energy push would restrict US output and reduce demand for oil products. Larger stimulus would boost demand near-term – also watch as to whether a Blue Steal result leads to a deal with Iran that brings more production onto global markets.
  • Result likely +ve for emerging markets with dollar weaker, better trade relations – look to USDMXN, USDCNH upside in this scenario.
  • Better trade relations with partners a +ve for Euro (see weaker dollar narrative) and for European equities, particularly cyclical names.

Key question that will remain unanswered on Nov 4th: Does the gigantic stimulus that Biden and company would unleash flood the US economy with too much liquidity at a time of strong economic recovery, creating inflation and leading to monetary policy uncertainty?

In other words, do we get so much fiscal stimulus that the Fed becomes cornered and is forced into hiking rates much sooner than planned?

Polling

Polling continues to show Joe Biden commanding a roughly 7.5pt lead nationally, whilst in the key battlegrounds, the lead is less than half at 3.4pts.

There are ranges and differences between states, but the broad picture remains that a Blue Wave is to be expected if we take the polling data as accurate. However, on a personal basis, my belief is that Trump has many ‘quiet’ supporters who do not show up in the polls, and many of whom will have been affected by the unrest over the summer. The Senate race is extremely tight right now but still indicate the Democrats just taking back control.

Latest Presidential polls as of Oct 29th, from RealClearPolitics (who power our election tracker):

Battleground   Biden   Trump    Spread  
Pennsylvania   49.5   46   Biden +3.5  
Florida   48.4   47.9   Biden +0.5  
Georgia   47.2   47.2   Tie  
North Carolina   48.4   47.7   Biden +0.7  
Arizona   47.8   46.5   Biden +1.3  
Minnesota   48   43.3   Biden +4.7  
Iowa   47.7   46.3   Biden +1.4  
Wisconsin   50.3   43.9   Biden +6.4  
Ohio   46.2   46.8   Trump +0.6  
Michigan   50.6   42.4   Biden +8.2  
Texas   45.4   48   Trump +2.6  
Nevada   48.3   43.7   Biden +4.6  

Sector & Single Stock Volatility Picks

Within our Biden20 basket of stocks which could do well from a Democrat clean sweep, green energy stocks look most exposed to downside if there were a Trump victory since it would materially affect the expected regulatory backdrop for clean energy investment.

Biden plans to set the US on an “irreversible path” to net-zero carbon emissions by 2050, with an ambitious goal to build a carbon pollution-free power sector by 2035. The proposals clearly imply a far more aggressive shift away from fossil fuels than a Trump administration would pursue.

The proposals would also involve upgrading millions of commercial and residential properties over 4 years to increase energy efficiency, with among other things the installation of solar panels, which is a potentially huge growth area (Sunrun, Solaredge, FirstSolar in our Biden20).

We also note a positive policy position on EV (Tesla, Nikola) with plans to invest in 500,000 electric vehicle charging stations. European clean energy stocks would also benefit from a Biden win, whilst automakers like VW and Daimler could benefit too.

As far as the corporate tax agenda goes, there could be several companies who benefitted most from the 2017 tax cuts who see earnings cut in 2021 in the event of a ‘Blue Steal’ result. Among European stocks, those with a large exposure to US sales like Ferguson, CRH, Ashtead could see a reduction in EPS due to tax hikes – however, it is likely that massive infrastructure spending and stimulus would offer significant support to those names in particular.

Our Trump20 Blend includes some of the largest US stocks which benefitted from the 2017 tax cuts (and therefore could see the worst EPS haircut in the event of a Biden win and Democrat Senate).

These include Nvidia, Netflix, Salesforce.com, CSX, Boeing, Union Pacific and ServiceNow.

Week Ahead: Big tech earnings to drive pre-election volatility

Week Ahead

It’s set to be a volatile week for US markets as earnings season continues on Wall Street with Big Tech reporting. Apple, Amazon, Microsoft, Alphabet and Facebook are among the biggest names delivering their quarterly updates. Meanwhile central banks are in action aplenty with the Bank of Japan, Bank of Canada and European Central Bank all holding policy meetings. And we of course countdown to November’s US presidential election with all eyes on the Vix. 

Big Tech Earnings 

It’s a massive week for corporate earnings and the focus will undoubtedly fall on  the FAANGs with Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) all set to report quarterly earnings figures on Thursday. Earnings come amid scrutiny on big tech as the US Department of Justice opened an antitrust case against Google’s parent company, Alphabet, which focuses on agreements it has made with handset manufacturers and carriers to be the default search engine on new phones. Whilst investors have shrugged this off so far, earnings may well provide fuel for greater volatility in the stock. 

Meanwhile there are fears that the case could create headwinds for Apple’s services business. The DOJ said Apple earns between $8 billion and $12 billion from Google, which would equate to between 17% and 26% of Apple’s revenues from Services last year. Apple recently released its iPhone12 but increasingly the reason for the stock’s higher multiples is about the ecosystem and Services revenues. Nevertheless, analysts remain bullish on these tech giants and they remain among the biggest winners YTDMicrosoft reports on Tuesday and there are dozens of large cap stocks reporting over the next few days. 

ECB  

With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday. Markets are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices. The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting. The threat of a double dip recession is real, with Christine Lagarde saying recently that the resurgence of the virus is a clear risk to the economy. Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December. 

To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann, said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.” 

Meanwhile there are also meetings of the Bank of Japan and Bank of Canada taking place this week. 

Economic Data 

The advanced reading for US GDP growth in the third quarter will be the highlight as markets look for clues to the pace and sustainability of the recovery.  The economy is expected growth in the region of 30% as businesses reopened following lockdowns. The Atlanta Fed’s forecast indicates the economy will have expanded by 35% on a quarterly basis – but this of course masks the real damage when it’s coming off the back of a 31% drop in Q2. The GDP reading comes at an opportune moment for Donald Trump who will be able to proclaim that the economy is on fire. 

Election Watch 

The final straight: polling data may not change much – the number of undecided voters has been small. Biden commands a strong national lead but in the key battlegrounds that will determine the result it’s tighter. We’re hosting a special pre-election live event on Nov 2nd to run through how the markets might react.  

Top Economic Data This Week

Open the economic calendar in the platform for a full list of events.

Date  Event 
Oct 26th  German Ifo business climate 
Oct 26th  UK Nationwide house price index 
Oct 26th  US new home sales  
Oct 26th  SNB Chairman Jordan speaks 
Oct 27th  BoJ core CPI 
Oct 27th  US durable goods, core durable goods 
Oct 27th  US CB consumer confidence 
Oct 28th  Australia CPI inflation 
Oct 28th  Bank of Canada rate decision 
Oct 28th  EIA crude oil inventories 
Oct 28th  FOMC member Kaplan speaks 
Oct 29th  Bank of Japan policy statement & economic outlook 
Oct 29th  German preliminary CPI inflation 
Oct 29th  UK mortgage approvals & lending figures 
Oct 29th  US advanced GDP – Q3 
Oct 29th  US weekly jobless claims 
Oct 29th  ECB policy decision & press conference 
Oct 29th  US pending home sales 
Oct 29th  US natural gas storage 
Oct 30th  Tokyo core CPI 
Oct 30th  Japan industrial production 
Oct 30th  French flash GDP 
Oct 30th  German preliminary GDP 
Oct 30th  Eurozone CPI flash estimates 
Oct 30th  Canada GDP 
Oct 30th  US personal spending & core PCE price index 
Oct 30th  Chicago PMI 
Oct 30th  UoM consumer sentiment 

 

Top Earnings Reports This Week

Don’t forget to tune into our Daily Earnings Season Specials on XRay for more updates

Date  Company  Event 
26-Oct  SAP SE  Q3 2020 Earnings 
27-Oct  Microsoft Corp.  Q1 2021 Earnings 
27-Oct  Pfizer Inc.  Q3 2020 Earnings 
27-Oct  Ping An Insurance Co.  Q3 2020 Earnings 
27-Oct  Merck Co.  Q3 2020 Earnings 
27-Oct  Novartis AG  Q3 2020 Earnings 
27-Oct  Eli Lilly and Co.  Q3 2020 Earnings 
27-Oct  3M Co.  Q3 2020 Earnings 
27-Oct  AMD (Advanced Micro Devices) Inc.  Q3 2020 Earnings 
27-Oct  Caterpillar Inc.  Q3 2020 Earnings 
27-Oct  HSBC Holdings plc  Q3 2020 Earnings 
27-Oct  S&P Global Inc  Q3 2020 Earnings 
27-Oct  BP plc   Q3 2020 Earnings 
28-Oct  Visa Inc.  Q4 2020 Earnings 
28-Oct  MasterCard Inc.  Q3 2020 Earnings 
28-Oct  United Parcel Service Inc. (UPS)  Q3 2020 Earnings 
28-Oct  Amgen Inc.  Q3 2020 Earnings 
28-Oct  ServiceNow Inc  Q3 2020 Earnings 
28-Oct  Boeing Co.  Q3 2020 Earnings 
28-Oct  Sony Corp.  Q2 2020 Earnings 
28-Oct  GlaxoSmithKline plc (GSK)  Q3 2020 Earnings 
28-Oct  Gilead Sciences Inc.  Q3 2020 Earnings 
28-Oct  Anthem Inc.  Q3 2020 Earnings 
28-Oct  Equinix Inc  Q3 2020 Earnings 
29-Oct  Apple Inc.  Q4 2020 Earnings 
29-Oct  Amazon  Q3 2020 Earnings 
29-Oct  Alphabet  Q3 2020 Earnings 
29-Oct  Facebook Inc.  Q3 2020 Earnings 
29-Oct  Samsung  Q3 2020 Earnings 
29-Oct  China Life Insurance Co Ltd (A)  Q3 2020 Earnings 
29-Oct  Comcast Corp. (Class A)  Q3 2020 Earnings 
29-Oct  Shopify Inc (A)  Q3 2020 Earnings 
29-Oct  Sanofi S.A.  Q3 2020 Earnings 
29-Oct  AB InBev SA-NV (Anheuser-Busch InBev)  Q3 2020 Earnings 
29-Oct  American Tower Corp.  Q3 2020 Earnings 
29-Oct  Starbucks Corp.  Q4 2020 Earnings 
29-Oct  Shell (Royal Dutch Shell)  Q3 2020 Earnings 
29-Oct  Volkswagen (VW) St.  Q3 2020 Earnings 
29-Oct  Stryker Corp.  Q3 2020 Earnings 
29-Oct  China Petroleum & Chemical (Sinopec) (A)  Q3 2020 Earnings 
29-Oct  China Life Insurance Co. Ltd.  Q3 2020 Earnings 
30-Oct  China Construction Bank Corp.  Q3 2020 Earnings 
30-Oct  AbbVie Inc  Q3 2020 Earnings 
30-Oct  ExxonMobil Corp. (Exxon Mobil)  Q3 2020 Earnings 
30-Oct  Chevron Corp.  Q3 2020 Earnings 
30-Oct  Honeywell  Q3 2020 Earnings 
30-Oct  PetroChina Co Ltd (A)  Q3 2020 Earnings 
30-Oct  Postal Savings Bank of China Registered Shs -A-  Q3 2020 Earnings 
30-Oct  TOTAL S.A.  Q3 2020 Earnings 
30-Oct  AUDI AG  Q3 2020 Earnings 
30-Oct  Altria Inc.  Q3 2020 Earnings 
30-Oct  Colgate-Palmolive Co.  Q3 2020 Earnings 
31-Oct  Berkshire Hathaway Inc.  Q3 2020 Earnings 
31-Oct  Industrial and Commercial Bank of China Ltd (A)  Q3 2020 Earnings 
31-Oct  Industrial & Commercial Bank of China Ltd.  Q3 2020 Earnings 
31-Oct  China Merchants Bank Co Ltd.  Q3 2020 Earnings 
31-Oct  Bank of China Ltd  Q3 2020 Earnings 

 

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