Joe Biden declared president-elect, stocks rally

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.