Market Update

As indicated in the accompanying table, global equity markets closed the week on a downtrend.
This week, journalists have been quick to highlight the resurgence in coronavirus cases, especially with the cooling autumn weather, and the resulting new restrictions. This narrative has dominated headlines, with concerns that these factors could impede the economic recovery, potentially prolonging the recession. However, it's essential to maintain perspective when evaluating the state of equity markets, as this week, it was US politics that took center stage.
While the impact of the coronavirus on the global economy persists, and new restrictions and lockdowns threaten to slow down the recovery, the situation today is notably different from the dark days experienced earlier this year. We do not anticipate a return to the severe lockdowns that devastated global economic activity in the first half of the year. This approach is not only politically and economically unviable but also due to the lower current death count.
Encouragingly, we are witnessing significant developments in coronavirus vaccine research. The availability of a vaccine would facilitate the complete reopening of economies, expediting the recovery process. Although the resurgence in infections and new restrictions may pose risks to employment markets and consumer spending, it is likely to dampen the recovery from a sharp 'V-shape' to a more gradual 'Nike Swoosh' shape — still a robust recovery, albeit slightly slower.
However, the focus should be on US politics. Political brinkmanship in Washington has hindered the provision of economic stimulus to struggling consumers and businesses. This sentiment was underscored by Jay Powell, the Fed Chair, who emphasized the need for politicians to provide fiscal stimulus alongside the monetary support provided by the Fed.
The recent passing of Ruth Bader Ginsburg has further diminished the prospects of bipartisan agreement on new stimulus measures before the US Presidential election on November 3, 2020. The election itself is anticipated to be highly contentious, with an expected surge in postal votes and the potential for prolonged vote counting, possibly stretching over several days. The close nature of the race might even lead to legal disputes, especially given President Donald Trump's reluctance to commit to a peaceful transfer of power if he loses to Joe Biden.
Market history has shown that equity markets can handle various outcomes, but they strongly dislike periods of uncertainty, and the upcoming US election adds significant uncertainty to the mix. Predicting market reactions to different election outcomes is challenging, as past predictions have often been proven wrong. It's crucial to remember that the US economy has weathered numerous crises and uncertainties in the past, including pandemics and political challenges.
While the current market weakness might be unnerving, it is largely a reaction to political uncertainty and is likely a short-term issue. Therefore, maintaining a long-term perspective and avoiding knee-jerk reactions is crucial. The underlying positive growth drivers remain intact, and while the current period might be unsettling, it's part of the natural cycle of market uncertainty and volatility.
This week's focus will be on the first debate between Donald Trump and Joe Biden on Tuesday, September 29, 2020. Data-wise, key events include US weekly jobless claims on Thursday, October 1, 2020, and Friday's US employment data, which includes non-farm payrolls, the unemployment rate, participation rate, and average earnings. Additionally, there will be Chinese PMI data and Eurozone CPI inflation, economic confidence, and unemployment rate announcements.