“Election in the US…”

  Source: Reuters

The world in the past week focused on the election in the US between Republican Donald Trump and Democratic presidential candidate Joe Biden.  Republican President Trump won the battleground of Florida and took the lead over Democratic rival Joe Biden in other US swing states. Trump added to the uncertainty when he falsely claimed that the he had won the US election and said that “they” were trying to steal the election without providing evidence.  He also said that he would go to the US Supreme Court to fight for the win if needed.   A win by Biden is widely considered to be supportive for European equities in the near-term because of expectations it would mean a bigger stimulus package and better trade ties with the United States. On Wednesday the outcome of the US presidential election hung in the balance as several states continued to count their ballots, including some of the most competitive battlegrounds where the tally could take days to complete.  The winner needs to secure 270 votes.  Biden predicted victory over President Donald Trump after winning two critical US states, while the Republican current president alleged fraud, filed lawsuits and demanded recounts in a race which is yet to be decided.   The current vote counting suggests that the Republicans are posed to retain control of US Senate, while Democrats will hold a slim majority in the House of Representatives.  A divided Congress would possibly prevent Biden from enacting major priorities such as fighting climate change or easing sanctions on oil producer Iran.  On Friday, Joe Biden gained more ground on President Trump in the battleground states of Georgia and Pennsylvania, edging closer to the White House hours after Trump falsely claimed the election was being “stolen” from him.  Joe Bidden would become the next president by winning Pennsylvania, or by winning two out of the trio of Georgia, Nevada and Arizona.  Meanwhile, Trump’s path appeared narrower as he needed to hang on to Pennsylvania and Georgia and also to overtake Biden in either Nevada or Arizona.      

Bank of England

The Bank of England increased its already huge bond buying stimulus by a larger than expected amount of 150 billion pounds to support the British economy from the new coronavirus lockdowns and the looming risk of Brexit.  The BOE raised the size of its asset-purchase programme to 895 billion pounds. The bank cut its forecasts for Britain’s economy expecting it to exceed its size before the COVID-19 pandemic only in the first quarter of 2022.  The BOE said, “The outlook for the economy remains unusually uncertain.”  The BOE kept its benchmark Bank Rate at 0.1% while it investigates the feasibility of taking borrowing costs below zero for the first time.  In the minutes of the BOE meeting and its quarterly outlook report on Thursday there was almost no mention of negative rates.  Britain’s economy has been supported by a surge in debt-fuelled spending by the government.  The BOE is buying up many of those bonds.  Meanwhile, a stay-at-home lockdown for England came into force on Thursday. 

The Federal Reserve Bank

The Federal Reserve Bank kept its loose monetary policy unchanged on Thursday and pledged again to do the necessary in the coming months to sustain a US economic recovery impacted by the COVID-19 pandemic and the uncertainty amid a still undecided presidential election.  In a news conference after the FED’s tow-day policy meeting, Jerome Powell said that the economy is still growing but “I would not say that anybody is feeling comfortable about this.” He further added that “We’ve gotten through the first five, six months of the expansion better than expected…  But we have to be humble where we are relative to this disease.  It has not gone away.”  Powell added that the FED is only now beginning to consider if it needs to extend various emergency credit facilities beyond their 31 December expiration.   

Currency Roundup

Monday saw sterling drop amid worries that the newly imposed national lockdown in England to stop the spread of the new coronavirus will take another hard hit on the British economy and its finances.  Britain’s financial watchdog said on Monday that payment holidays will be extended on credit cards, car finance, and personal loans before tougher coronavirus restrictions come into effect this week.  

On Tuesday foreign exchange markets in Europe moved towards pricing a victory for US Democratic candidate Joe Biden against President Donald Trump despite warnings that possible post-election disputes could release weeks of dollar volatility.  The dollar was down 0.4 percent against a basket of currencies at 93.656 after reaching a month’s high on Monday.  The euro extended gains and climbed 0.49 percent against the dollar to $1.1645 while sterling also climbed 0.56 percent to just below $1.30.  Overnight gauges of volatility for major currency pairs jumped to multi-month highs ahead of the outcome of the election.  The euro/dollar implied volatility surged to 19% to its highest level compared with less than 7% on Monday.  Furthermore, the dollar/yen volatility also surged.  Other currencies making gains against the dollar, the Aussie jumped 0.87% higher after an initial dip that followed the Reserve Bank of Australia lowering its policy interest rate by 15 basis points to 0.1% and announcing a bond-buying programme.  The safe-harbour yen was also slightly higher up 0.1% at 104.67 per dollar.  Trading in sterling was relatively calm on Tuesday as the currency stayed neutral against the euro and rose against the weaker dollar.  Brexit negotiations are continuing this week and investors are hoping that a deal setting up the future relationship between the two major trading partners will be reached.  After the announcements by the Bank of England on the bond-buying stimulus sterling climbed against the dollar and the euro. 

The dollar slipped to its weakest level in more than two years against the yuan and eased against other Asian currencies as Democrat Joe Biden edged closer to the White House.  Should Biden overcome the legal challenges from Trump to become the next president, republicans look likely to retain control of the Senate and can use that to impede Biden’s agenda.  This complicates matters for currency traders.  The euro bought $1.1736 on Thursday steady from the previous session. 

Market Roundup

November started European trading on a positive note as accelerating Chinese factory activity helped outweigh concerns about a second wave of COVID-19 outbreak.  The German DAX rose 0.3% on Monday after a private business survey showed that activity in China’s factory sector accelerated at the fastest pace in nearly a decade in October.  Meanwhile the same index jumped 2% as a survey showed factories in Europe’s largest economy saw record growth in new orders In October, with number improving in other eurozone economies as well.  Wall Street stocks also gained momentum as investors prepared for the US election, with Democratic Joe Biden leading over Republican President Donald Trump in national opinion polls, however, the race looks close in battleground states.  London’s domestically exposed midcap index .FTMC slipped 0.2% after Prime Minister Boris Johnson announced new restrictions to curb the coronavirus across England that had to kick in on Thursday and last until 2^nd December. 

Eurozone bond yields ticked higher on Tuesday, as investors did not take any new large positions while voters in the US headed to the polls. 

European stock markets were making strong gains while eurozone government yields rose, another sign that investors are gradually switching into a more cautious mood and getting ready for a win by the Democratic candidate.  Donald Trump the republican candidate trailed Biden in national opinion polls.  Growth-sensitive cyclical sectors such as oil and gas, miners and banks .SX7P once again led the gains climbing more than 2%.  The pan-European STOXX 600 closed 2.3% higher its best day since mid-June whilst bourses in Frankfurt, Paris, and London saw similar gains.   Meanwhile, investors waited for the Federal Reserve and the Bank of England meetings that were expected to raise more support.  Sentiment was helped by gains overnight on Wall Street amid US manufacturing activity that accelerated more than expected in October, and Asian equity markets.   

German bond yields dropped on Wednesday at their lowest since March and Portuguese yields reached record lows amid uncertainty about the US election.  Safe heaven assets such as Bunds and Treasuries gained on signs that the presidential election could drag on, as the outcome appeared to rest on some pivotal states that could take days to reach the final outcome. The gap between US and Germany 10-year bond yields tightened to around 143 basis points as US Treasury fell more than Germany’s.  European stocks slid on Wednesday as US President Donald Trump took the lead over John Biden the Democratic rival.  The pan-European STOXX 600 index fell 1.2% by 0805 GMT whilst the German DAX dropped 1.8% and the UK FTSE  dropped 1.2%.  Banks .SX7P, oil and gas .SXEP and mining .SXPP stocks dropped more than 3% after leading a surge in markets this week as investors anticipated better trade ties with Washington and more economic stimulus for the US economy.  London’s FTSE 100 climbed on Wednesday amid a weaker pound, however gains were capped as results showed a very tight race between the Republican President Donald Trump and Democratic Joe Biden. 

On Thursday London stocks climbed after the Bank of England extended a stimulus programme to support the British economy as it goes into a second coronavirus lockdown.  The blue-chip FTSE 100 index added 0.6% with bank and homebuilding stocks among the biggest gainers while the domestically focused mid-cap FTSE 250 gained 0.6%. On Thursday US stocks futures jumped as investors bet that a Republican held Senate would block any moves by a Joe Biden administration to tighten regulation and raise taxes on corporate America.    

Oil

Oil prices steadied after two weeks of weakness with Brent futures down 0.2% at $38.89 a barrel while, US West Texas Intermediate ended 2.9% higher at $36.81 a barrel.    On Monday oil prices rose nearly 3% rebounding from several days of losses built on concerns of rising coronavirus cases, a day before the end of the US presidential US election voting.  The oil market has been under pressure amid concerns of weaker fuel demand as several European countries went back to lockdowns to curb the coronavirus pandemic. Oil prices climbed on Wednesday on growing expectations that OPEC and its allies, OPEC + would hold off back on 2 million bpd of supply in January, given demand is impacted by the new COVID-19 lockdowns.  Also, on Wednesday, the Energy Information Administration said that US crude stockpiles dropped sharply last week while gasoline stocks increased, and distillate inventories fell.  West Texas Intermediate was up 1% at $38.06 a barrel by 1442 GMT while Brent crude was up 1.3% at $40.22 after hitting highs of $40.9.  Oil dropped on Thursday as Joe Biden edged closer to the White House.   US West Texas Intermediate crude futures were down 1.53% to $38.55 a barrel at 0756 GMT while Brent crude futures fell 1.55% to $40.59 a barrel.  Both contracts had jumped around 4% on Wednesday.

Gold

Gold prices gained on Monday amid uncertainty around the outcome of the US presidential election, while a spike in coronavirus cases increased fears about an economic recovery.  The appeal for the metal increased as a safe-haven asset.  Spot gold climbed 0.6% to $1,889.76 per ounce while US gold futures increased 0.6% to $1,891.  So far this year gold which is considered a hedge against inflation and currency debasement, has climbed 25%. On Thursday gold held firm in a narrow range as investors were cautiously optimistic that Democrat Joe Biden would edge past President Donald Trump in a tight race.  Spot gold rose 0.4% to $1,910.33 an ounce by 0719GMT while US gold futures gained 0.8% to $1,911.60 per ounce.  If Biden secures a presidential election, analysts are expecting larger stimulus and gold tends to benefit from widespread stimulus as it is considered a hedge against inflation.  Supporting gold was a subdued dollar, making bullion cheaper for those holding other currencies.       

Malta:  Government Expenditure on Social Security Benefits:  January to September 2020

According to a press release dated 3^rd November 2020, government outlay on Social Security Benefits increased by EUR 63.2 million between January and September 2020.  Spending on social security benefits totalled EUR 816.2 million during the first three quarters of 2020, an 8.4 % higher than the corresponding period in 2019. 

Malta: Index of Industrial Production – September 2020

In September 2020, the seasonally adjusted index of industrial production decreased by 1.7% over the previous month.  The largest decrease was registered in the production of capital goods (5%) followed by a decrease of 1.2% in the production of consumer goods.  Production of intermediate goods and energy increased by 1.6% and 0.1% respectively.  In comparison to September 2019 the working day adjusted index of industrial production dropped by 3.2%.  Decreases in production were registered in all the main industrial groupings except for energy which registered an increase of 1.8%.  Production of capital goods, consumer goods and intermediate goods declined by 8.2%, 3.5% and 1.3% respectively. 

Malta:  Government Finance Data

In a press release dated 30 October 2020 the national statistics office show that between January and September 2020, recurrent revenue amounted to EUR 2,930.3 million a drop of 17.8% from the EUR 3,563.7 million reported in revenue up to the end of September 2019.  During the period under review, recurrent expenditure totalled EUR 3,320.3 million an increase of EUR 295.4 million when compared to the EUR 3,024.8 million reported in 2019.  Meanwhile, by the end of September, total expenditure amounted to EUR 4,069.4 million that is 15.4% higher than the corresponding period in 2019.  The interest component of the public debt servicing costs totalled EUR 138.7 million, an EUR 8.4 million decrease from the same period in 2019.  By the end of September 2020, Government capital spending amounted to EUR 610.4 which represents EUR 256.5 million higher than 2019. The difference between total revenue and expenditure resulted in a deficit of EUR 1,139 million reported in the Government’s Consolidated Fund at the end of September 2020.  This represents an increase in the deficit of Eur 1,176.9 million when compared to the surplus of EUR 37.9 million witnessed during the same period in 2019.  Meanwhile at the end of September 2020, Central Government debt stood at EUR6,623.4 million a EUR 1,367.9 million increase from the previous year.  

 

 

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