Investors will remember this November for a long time
The new month kicks off with the long-awaited US presidential election, tougher COVID-19 containment measures in Europe, three central bank decisions on monetary policy, and reports on the US, Canada and New Zealand labor markets. Despite these major events and heightened uncertainty, the Dow Jones Industrial Average was able to recoup last week’s losses. The US dollar rose against the euro, Japanese yen and other leading currencies. While this optimism is difficult to justify, the price action reflects markets’ hopes that we will see the winner of the presidential race on Wednesday.
Unfortunately, at such times, the events of 2000 come to mind, or rather, the elections with the participation of Bush and Gore, the winner of which was announced only on December 12. At the same time, votes were recounted only in the state of Florida. This time, a mail-order vote could determine the outcome in Pennsylvania, North Carolina and Wisconsin. More than 96 million Americans voted early; in some states, the number of early voters exceeded the number of those who chose to come to the polls on election day. The elections are about to begin, and Joe Biden’s leadership in the “wavering states” is not confident. Recent polls have shown a narrowing gap, and we will be very lucky if the winner is announced before the end of the week.
One thing is for sure: the next 2-3 days will be very volatile. In 2016, polls predicted a Clinton victory. However, when Trump’s victory became apparent, Dow futures on the postmarket dropped as much as 750 points. However, by 4:30 am ET, the market bounced back from a local low and hit record highs on Wednesday. As for the foreign exchange market, the EUR / USD pair jumped 300 points on the night after the elections (from 1.10 to 1.13), but on Wednesday it lost all profits and met the end of Wednesday’s trading at around 1.09. USD / JPY, which collapsed at the moment when the outcome of the elections became obvious, showed the same sharp fluctuations. During the Asian session, USD / JPY fell from 105.47 to 101.20 and then rose sharply during the American session to close just below 106.
Typically, the economic calendar for the first week of the month is very busy, but the US presidential election, which generates incredible price movements, can overshadow monetary policy meetings. A simple example: the Australian dollar did not react much to the decision of the RBA to cut interest rates to 0.10%. This is partly due to the fact that two-thirds of the surveyed economists expected this decision from the regulator. Australian statistics were good, with manufacturing activity and building permits issued skyrocketing in October, as did ANZ job postings. Last month, the country came out of a two-month quarantine and for the first time in 5 months did not record a single case of coronavirus infection. The country’s economy is clearly recovering, but the RBA has long suggested that rate cuts would be a more effective instrument once the restrictions are lifted.
Experts believe that the Bank of England will also strengthen its monetary stimulus this week, and the Federal Reserve will not adjust its instruments. Despite the fact that on Friday the number of people infected with coronavirus in the United States exceeded 99 thousand, the reluctance of the authorities to tighten social distancing measures has led to an improvement in macro statistics for the country. According to ISM, activity in the manufacturing sector is growing at the fastest pace in 2 years, and there is every reason to expect a similar dynamic in the service sector. The employment component also exceeded 50; this means that companies create more jobs than they cut.