INDmoney Macro Update: What's happening in the markets?

Last updated: 26 Oct, 2020 | 06:50 am

INDmoney Macro Update: What's happening in the markets?
  • Markets remain in a tight range globally with U.S. presidential elections just around the corner and investors looking towards a sooner stimulus.
  • U.S. personal savings rate signals towards economic recovery as consumption increases.
  • Democrat's pledge for a large stimulus can be seen offsetting the blows from their plans to raise taxes on corporate profits and capital gains.
  • European markets rose on the back of the near close of the stimulus bill in Washington.

Income and Spending

  • U.S. personal savings rate continues to drop after a sharp rise to 33.6% in April as countries worldwide were forced into nationwide lockdowns
  • Gradual consistent fall in the savings rate since lockdowns first hit, signals towards a higher spending and consumption, spurring economic recovery.
  • This lower saving rate can also be attributed towards a higher proportion of income being utilized by citizens in order to sustain themselves during these harsh times.
  • Though the U.S. economy stays resilient despite the pandemic with promising numbers this quarter, people of the country await the much needed round of stimulus.

Clean energy is the future

  • Under a potential Biden regime, the clean energy industry is set to prosper as the candidate's campaign pledge of net zero emissions by 2050 boosts the industry at the expense of conventional energy with Dow Jones oil and gas index already being down almost 49% this year.

Broad market indices

  • S&P 500 gained 0.5% thursday on hopes that congress and white house would strike a deal on another round of stimulus which has been getting delayed.
  • The index remains in the red for the week by being down almost 2% on growing uncertainty regarding the elections and another round of stimulus
  • On the other side of the Atlantic, FTSE 100 loses almost a percent this week after recovering 1.38% today while CAC 40 remains 0.6% down for the week.

FX

  • The "election premium" in the currency market, or in simple words, the movement in the currency market attributable to the US elections and its results has led the major currency pairs, i.e. USD/EUR or USD/JPY, fall to a two week low before the week going into elections, a same trend that was witnessed before the 2016 elections. And if history is to be repeated with a Republican win, we may see the premium curve steepening starting a week before the election.
  • The US dollar suffered the most, and witnessed a lot of selling throughout the week against safer currencies like JPY, with a Biden presidency and a big stimulus likely. GBP(Pound Sterling) is up 1.2% this week and is clinging to $1.3, with hopes that a trade deal can be reached before the transition period ends on December 31. With political uncertainty and high risk that the election results are contested, the currency market will have a volatile week before the elections.

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