Market Update

Amidst a week marked by sporadic volatility, global markets closed the session on a downward trend. While the increase in Coronavirus lockdown measures, including national lockdowns in countries like France and Germany, and escalating local lockdowns in the UK, contributed to this volatility, the markets are gradually looking beyond the pandemic's immediate impacts. Instead, attention has shifted to factors like the upcoming US election (on November 3), expectations regarding key central banks such as the ECB and the BoJ, ongoing Brexit negotiations, and the release of elements from the new Chinese 5-year plan.
From a market perspective, although the pandemic remains a severe social challenge, companies have adapted to the current climate, leading to a degree of market resilience. Since the market trough in March, there has been a noticeable V-shaped (or Nike Swoosh-shaped) recovery, interspersed with occasional pockets of volatility. This week, despite significant events such as the US election, we maintain a largely positive outlook for the markets moving forward.
In the US, as the election unfolds and with many Americans having already cast their votes, Democratic candidate Joe Biden has maintained a 9-point lead in the polls (averaged across multiple polls) over Republican incumbent Donald Trump. Biden has secured significant leads in key swing states like Michigan and Wisconsin, and even in traditionally Republican Arizona. While Biden's potential victory injects uncertainty into the markets, this volatility is expected to be short-lived. Both Democrats and Republicans have highlighted two immediate priorities regardless of the election outcome: global trade and ongoing Covid aid. Hence, regardless of the election's outcome, market impact in the short to medium term is likely to be negligible, allowing investors to navigate short-term fluctuations and attractive valuations.
On the global front, both the Bank of Japan (BoJ) and the European Central Bank (ECB) conducted their policy meetings, leaving policies largely unchanged. BoJ's head, Haruhiko Kuroda, revised down growth forecasts for the Japanese economy by 0.8% in the 2020 fiscal year but predicted a robust rebound of 3.6% in the 2021 fiscal year. ECB's Christine Lagarde maintained their September projections of an 8% contraction in Eurozone GDP for 2020, followed by a 5% rebound in 2021. Lagarde also hinted at reassessing the data in December, suggesting a potential boost to The Pandemic Emergency Purchase Programme (PEPP). European markets responded positively to Lagarde's statements, anticipating an additional €500 billion to be added to the existing €1.35 trillion PEPP.
Furthermore, China unveiled its 14th 5-year plan, emphasizing quality growth comparable to moderately developed nations by 2035 and increased investment in research and development. Notably, China's plan to open up its economy to global competition aligns with President Xi's call for active cooperation with other countries. This development not only expands opportunities for global corporations in China's market of approximately 1.4 billion people but also eases some of the pressures stemming from US trade relations on global markets.
Towards the week's end, Japan's jobless rate remained steady at 3%, while the job-to-applicant ratio continued its decline to 1.03. In the US, initial jobless claims came in lower than expected and prior at 751,000, with continuing claims also surpassing expectations and prior at 7.76 million. Positive US jobs data was further bolstered by a staggering 33.1% annualized increase in GDP, albeit from a low base.
Looking ahead to next week, while key data points like US and Chinese manufacturing PMIs, UK and Euro Area services PMIs, US unemployment figures, and policy meetings for the US Federal Reserve and the Bank of England are noteworthy, extreme short-term market sentiment is likely to be centered on Tuesday's US Presidential Election.