Market Update

This week marked a significant win for global equity markets.
As of Friday, November 6, 2020, votes were still being counted in the remaining key battleground states, but it seemed that Joe Biden, a Democrat, was nearing victory over President Donald Trump, a Republican. What surprised equity markets was not Joe Biden's expected victory but the Democrats' failure to gain control of the Senate.
Contrary to market expectations, it appears that Republicans will maintain a slim majority in the Senate. Additionally, they have narrowed the Democrats' lead in the House of Representatives. While the presidential election captures headlines, the Senate control holds more weight in the market's eyes. A split Congress diminishes the new President's influence significantly.
This outcome is seen as a Goldilocks result: less political turbulence to keep investors awake at night. More importantly, a Republican Senate acts as a barrier against potential tax hikes and stringent regulations proposed by Joe Biden. The only drawback could be the size of the upcoming fiscal stimulus package, which is likely to be smaller than the Democrats' proposed $2 trillion+ plan. On the positive side, a reduced stimulus package means US monetary policy will remain accommodative for a more extended period.
Market sentiment was also buoyed by robust economic data. Alongside the US ISM and Eurozone PMI data highlighted in the mid-week update, the latest US employment figures outperformed economists' expectations. Non-farm payrolls increased by 638,000, private payrolls rose by 906,000, and the unemployment rate fell from 7.9% to 6.9%, contrary to the expected 7.6%. Average weekly working hours also saw an uptick to 34.8.
In the UK, the Bank of England significantly expanded its QE (asset purchase) program by £150 billion. Although interest rates remained at 0.1%, the potential negative impact of new coronavirus lockdowns on economic recovery raises the possibility of negative interest rates in the near future.
Looking ahead to the upcoming week, with the US Presidential election hopefully behind, there's a wealth of economic data to focus on. Key points of interest include US and Chinese CPI inflation, US weekly jobless claims, the University of Michigan consumer sentiment index, and UK industrial and manufacturing data, along with UK employment figures.