Unsettled by election drama, markets look on the bright side

In this news, we discuss the Unsettled by election drama, markets look on the bright side.

LONDON (Reuters) – Those who banked on big U.S. government spending madness may be dismayed, but two days before U.S. election day, investors are looking on the bright side – less regulatory tightening than expected and a central bank still in full impression of fashion money.

Global stocks continued their .MIWD00000PUS surge on Thursday as Democratic challenger Joe Biden edged closer to snatching the presidency from Donald Trump, and there are few signs of panic over the election outcome that could end up ahead. courts.

The disappointment over the stimulus appears to have been replaced by the relief that without a Biden sweep of Congress and the White House, a standoff between a Biden administration and a potentially Republican Senate would derail any plans to tighten the screws on the giants of the United States. technology and pharmacy.

Bets on these sectors have gained momentum, even as stocks in renewables – where Biden has pledged big investments – rallied to the assumption that climate-friendly assets would come out ahead no matter what. the next president.

“Less regulation… is a huge plus and offsets the likelihood of reduced stimulus,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

“You are coming back to the mid-term scenario of reflation as well as the downside scenario for longer,” he said, referring to expectations of lower borrowing costs with a budget spending package. more reduced.

Market fluctuations over the past 36 hours represent a turnaround in the position, given the tighter-than-expected race, investors said, but with the US and global environment characterized by abundant liquidity and bond yields at most. low, flows to equities and corporate debt are likely to continue.

Chart: Trump timeline –

This is especially the case for tech mega-companies – shares of Apple AAPL.O, Amazon AMZN.O and Alphabet GOOGL.O extended Wednesday’s rally.

For Jonathan Bell, chief investment officer at Stanhope Capital, the result was the best of both worlds.

“Being elected Biden increases the odds of a fiscal stimulus deal, but (with a Republican Senate) it also reduces his ability to push through a significant increase in taxes or policies that could constrain Amazon and Apple,” Bell said.

“Tech seems to think that the disruptors, most of which are anti-trust regulations, will not be significant and that the Senate will be able to prevent them.

Likewise, Didier Saint-Georges, managing director of wealth manager Carmignac in Paris, noted the positive points of pharma shares.

The election did little to change the overall positive investment backdrop, St. George said, adding, “Trump’s move to Biden looks like a revolution, but in terms of the market, it doesn’t. maybe is not that important.

FEDER TO THE RESCUE?

Cue central banks.

Their money printing largesse lowered bond yields and volatility, leading to a flood of equity investments. The S&P 500 Index has gained over 60% since 2016. This week it is already up 7% .SPX.

The bet now is that any fiscal stimulus deficit can force the Federal Reserve and its peers to take over. The Bank of England on Thursday announced a bigger than expected expansion of its bond buying program.

Chart: Central bank balance sheets inflate –

Yields on US Treasuries slipped further as reflation trades unwound, with 10-year and 30-year yields down more than 15 basis points each in the past two sessions.

The Fed releases its latest policy statement on Thursday. Amid electoral uncertainty, he is expected to stick to his latest statement and reiterate his pledge to do all in his power to help the economy.

Investors are hopeful that policymakers could provide a more solid indication of future easing.

“I’m not sure the Fed will just drop (calls for fiscal stimulus) and say ‘don’t worry, we’re going to do the heavy lifting,’ Saint-George de Carmignac said.

“But what cannot be done on a fiscal level will have to be done on a monetary level.”

Chart: The risks of the Fed: employment The risks of the Fed: employment –

Additional reporting by Susan Mathew in Bangalore, David Randall and Lewis Krauskopf in New York; Editing by Angus MacSwan

Original © Thomson Reuters

Originally posted 2020-11-05 17:26:11.

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