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09 November 2020

Markets Rise in US Election Week

Global markets made some consistent gains last week, with the FTSE 100 adding 5.7% despite England entering a month-long lockdown in order to slow the spread of Coronavirus infections. Similarly, the US S&P 500 rose 6.6% before the weekend, prior to Joe Biden being projected to be the winner of the US election.

During the week, US stock markets recorded their biggest post-election leap in decades. Despite uncertainty over which candidate would initially win the race, investors braced for the outcome of the tight presidential race that could frame economic policy and markets for the next four years. Shares rallied, mostly led by tech and health firms, as investors expected the closer-than-predicted results would reduce the chance of any large changes for businesses, reducing uncertainty. Between election day (3rd November) and 6th November, the Dow Jones had gained 6.5% while the wider S&P 500 and tech-heavy Nasdaq climbed 7.3% and 9.8%, respectively.

As part of the announcement of the new month-long restrictions in England, which require the closure of restaurants, pubs, gyms and non-essential shops, the furlough scheme has been extended until March 2021. Recently, firms had to top up furloughed wages by 20%, with the government paying 60%. However, now the state will contribute the full 80%, with the employer only covering national insurance and pension contributions. Chancellor Rishi Sunak also announced that the self-employed will be able to claim state aid of up to 80% of profits. The rise is up from the current 40%, adding over £4.5bn of government support for the self-employed between November and January. Businesses will also continue to be able to apply to banks for government-backed support loans until 31st January, compared with the initial 30th November deadline. Nevertheless, as the eligibility will be the same as for previous grants, as many as 2.9 million contractors, freelancers and newly self-employed people will remain excluded.
 
According to new official figures, the economies of the Eurozone bounced back in the third quarter of the year. Economic activity for the region as a whole grew by 12.7% in the three months to September, recovering from a record slump of 11.8% in the second quarter. Annually, Eurozone gross domestic product contracted by 4.3% in the third quarter, easing from a record decline of 14.8% in the previous three months. However, the growth was not enough to reverse the falls seen during the first half of 2020 due to the Coronavirus pandemic. Furthermore, the outlook for the rest of the year remains highly uncertain, with further weakness expected, caused by a new surge of Coronavirus cases and tighter restrictions. Data from Eurostat also highlighted that consumer prices in the euro area are expected to fall by 0.3% on annual basis in October, an unchanged rate of deflation from the previous month. However, the annual core consumer price measure, which excludes food, energy, tobacco, and alcohol, increased by 0.2% in October.
 
According to official data, factory activity in China slowed slightly in October, however, it remained in growth territory as the nation continued its recovery after being hit by the Coronavirus pandemic. The purchasing managers’ index (PMI) has largely bounced back after dropping in February as a result of strict pandemic measures. In October, the PMI figure stood at 51.4, slightly below the reading in September of 51.5. Analysts highlighted that October’s figures saw an increase in many key indices, including imports, exports, and new orders, demonstrating a quick recovery. The non-manufacturing PMI came in at 55.2 points, showing an increase of 0.3 percentage points from September, once again indicating further signs of an economic rebound.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Markets Rise in US Election Week
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