GLOBAL MARKETS RALLY AS US PRESIDENTIAL RACE GOES DOWN TO THE WIRE

GLOBAL MARKETS RALLY AS US PRESIDENTIAL RACE GOES DOWN TO THE WIRE

This week was dominated by the still as yet unresolved US election. Although the race is still too close to call in a number of key swing states, Joe Biden is in a strong position needing just one or two more results to go his way. Donald Trump has to win all five competitive states still in play to be re-elected. The President is reacting to the situation in his usual calm and measured way. While the race is close enough that the Trump team has launched several legal challenges, they appear ill-founded and ill-fated.

Elsewhere, the polling industry has yet more egg on its face, again underestimating the Republican candidate by 3 to 4 per cent. Not enough to save Trump, it may yet save the Senate for Republicans. Four years of potential stalemate might not be that great for the country but it certainly cheered up the markets – which now view Biden’s tax rises as less likely to happen. Less Twitter, low taxes was about the best the market could have hoped for. When the market realises a special election will be needed in January to decide the Senate it’s going to be very disappointed.

US: KNIFE EDGE ELECTION DRIVES STOCKS UP AS DOLLAR FALLS

Although the result of the US presidential election is still pending, the Democrats’ comparatively poor results boosted equities and government bonds and weighed on the dollar. Markets had been leaning towards a Biden presidency, backed by a Democrat controlled Senate and House of Representatives. With Republicans likely to keep control of the Senate the chances of a repeal of Trump’s corporation tax cuts along with greater regulation have receded. US equities rallied strongly on Wednesday, with the tech- heavy Nasdaq index up 4.4 per cent. The biggest gains came from tech giants Facebook and Alphabet which were up 8 per cent and 6 per cent respectively.

A Republican Senate will also be more cautious than a Democrat-controlled one. With the size of the next round of coronavirus stimulus likely to be at the lower end of the scale, US government bonds also rallied strongly and the yield on 10-year Treasuries saw its biggest fall since April. The dollar has fallen to its lowest in two months, while many global equity markets were up by more than 5 per cent for the week.

UK: BANK OF ENGLAND PREDICTS DOUBLE DIP RECESSION

The Bank of England is to inject a further £150bn into the economy as it expects UK GDP to contract again this year due to the increase in coronavirus cases and reintroduction of lockdown. The additional £150m will be used to purchase government debt over the course of 2021 and will take the total gilt purchase scheme to £875bn. This week’s meeting of the Monetary Policy Committee left interest rates on hold at 0.1 per cent, and there was no vote on introducing negative rates.

The contraction in Q4 is down to a slowdown in consumer spending and, although this is expected to recover in Q1 2021, growth in the first half of next year is likely to be held back as the departure from the EU single market is predicted to restrict trade. The bank’s latest forecast says extending the Government’s furlough scheme will help keep unemployment low, but it expects unemployment to hit 7.75 per cent by next summer up from its current level of 4.5 per cent.

EQUITIES: UBER AND LYFT SHARES BOOSTED BY REFERENDUM VICTORY

Taxi platforms Uber and Lyft saw their shares surge after voters in California backed a referendum which allows them to classify their drivers as self-employed. Changes to California labour law meant the companies faced having to treat their drivers as employees and provide benefits such as health insurance and holiday pay. Uber shares are up 22 per cent this week to their highest value in over a year, while Lyft is up 25 per cent.

The decision and jump in share price for the ride-hailing apps shows the impact that regulation can have on tech stocks and helps explain the wider gains for tech share prices since Tuesday’s election. In the run up to the election, opinion polls had shown a clear lead for Joe Biden and led to speculation the Democrats would be able to take control of both chambers in Congress. Regulation of big tech has become a key issue for many Democrats but with Republicans likely to control the Senate the prospect of greater regulation of tech firms has all but disappeared.