March 2021: The show must go on

  • Real yields are still deeply negative despite the recent US Treasury sell off
  • Inflation is contained in EM countries
  • India’s economic recovery remains on track

2 to 8 November: America has decided

Although there are a number of states yet to be called, Joe Biden has already gained over 270 electoral college votes to become the United States’ 46th President (to be inaugurated on the 20th January 2021). Although President Trump has not conceded yet and vowed more legal claims, it is highly unlikely that the incumbent President can remain in office. It is worth noting that a ‘blue wave’ victory by the Democratic Party did not materialise, as the Senate will most likely remain under the Republicans’ control at least until January, and there is a good chance that Republicans will retain a Senate majority thereafter. Financial markets found comfort in the idea that there would be no political deadlock over the outcome of the Presidential election, which could have created policy paralysis and policy uncertainty for a prolonged period.

Due to the excitements that came with the Presidential election, many have ignored the release of the latest labour market metrics in US: non-farm payrolls rose 638,000, whilst the unemployment rate fell to 6.9% in October. Fed Chair Jerome Powell noted the improvement in economic activity and the jobs market in his regular post-decision speech, but emphasised downside risks, which could halt the recovery. The Fed continues to be committed to the zero-lower bound for several years.

Now that the US Presidential election is behind us, investors can recalibrate their focus and pay more attention to policy agendas, vaccine news and the upcoming macro data releases.


26 October to 1 November: Fasten your seatbelts: America votes

The US’ economy recovered more than 80% of its decline, driven by a bounce in consumer spending and a pick-up in housing activity, according to the latest GDP report. Real GDP rose 7.4% quarter-on-quarter in 3Q20 (following a 9% QoQ drop in 2Q20), which translated into a 2.9% decline in annual comparison (an improvement compared with the 9% YoY contraction seen in 2Q20). Going forward, developments in the labour market will be key for future GDP growth. The downside risks stemming from a weak jobs market could be mitigated by another economic relief bill – the timing of which remains unclear.

America votes on the 3rd November. Just a day before the US Presidential elections, former Vice President Biden maintains an 8-point nationwide lead over President Trump, according to the latest Reuters/Ipsos poll taken 27-29th October. Reuters/Ipsos polls also show that over 75% of American voters are concerned about the health crisis and almost 60% disapprove of the way President Trump has been handling it. According to various state polls, Mr Biden is more likely to win some of the swing states like Michigan, Wisconsin, Arizona and Pennsylvania (57 electoral college votes in total), whilst Florida and Texas remain too close to call (67 electoral college votes in total).

If the US Presidential election was not enough, markets will need to digest a barrage of economic data releases, such as the release of the October US jobs market figures on Wednesday and Friday, and the Federal Reserve’s latest monetary policy decision just after the election is concluded.

19 to 25 October: The Final Countdown

With just a week to go, all eyes are now on the US Presidential election. Polls continue show a Biden-lead by a wide margin on the national level. According to the New York Times, the second Presidential Debate did not really move the dial for either of the candidates. But, let’s not forget that there are other relevant topics on the horizon for investors, such as the negotiations between the Democrats and Republicans to construct and pass a new round of economic relief bill.

This week, the leaders of the Communist Party in China will meet to map out the next phase of economic developments. By the end of the convention, the Party will draw up and pass the 14th five-year plan, which may gravitate around technological innovation, economic self-reliance and a cleaner environment. The Party will also set goals for the next 15 years, as President Xi wishes to make progress on China becoming a global lead in technology and other strategic industries.

12 to 18 October: Emerging Asia to lead global economic recovery

The International Monetary Fund (IMF) has released the World Economic Outlook’s latest issue including an updated assessment on the world economy and revised growth projections. According to the IMF, global GDP could contract by as much as 4.4% in 2020, followed by a 5.2% recovery in 2021. From a regional standpoint, developed economies face a steeper contraction of 5.8% this year and a subsequently shallower recovery of 3.9% in 2021 relative to emerging economies, where GDP decline is foreseen at 3.3% this year followed by a 6% bounce in 2021. However, the economic recovery across the EM space could be unequal across regions with Asia being the first out of the slump followed by the rest of emerging economies.

There is only two weeks to go until the Presidential election in the US. Joe Biden continues to lead Donald Trump in the national polls (51.9% to 41.3%, according to the Guardian’s poll tracker on the 18th October), which means that the former Vice President will likely win the popular vote, as did Hillary Clinton in 2016. However, receiving the highest number of votes does not automatically translate into a Presidential victory, as electoral votes are key. All eyes are on the swing states now.

5 to 11 October: President Trump returns to the campaign trail

As China was on holiday for most of the week, investors were busy the news flow coming out of the US. President Trump left the hospital, where he was treated after testing positive for Covid-19, and returned to the White House. The President was cleared by his doctor, claiming Mr. Trump was no longer a coronavirus transmission risk to others and could end self-isolation. The White House did note disclose a negative covid test. The President made it clear that he wants to return to the campaign trail as soon as possible – in an attempt – to close the popularity gap between him and Mr. Biden. According to the New York Times’ report, Joe Biden’s lead was as high as 12 points (11th October). Fox News’ own poll suggests that the President is 10 points behind the former Vice President (survey conducted 3-6th October).

This week, markets will be intrigued to see if Nancy Pelosi and Steven Mnuchin make any progress on finding the common ground to pass a new economic relief bill. The IMF’s annual meetings will be another key theme, which could influence investors appetite for risk assets globally.

28 September to 4 October: President Trump’s health: a new layer of uncertainty

We have just had a very busy and intense week, but before turning to the latest political developments in the US, let’s start with the state of the world economy. The JP Morgan Global Manufacturing PMI further increased in September, rising to 52.3 – a 25-month high. The gauge suggests that the recovery of worldwide industrial activity continued, as economies carried on with their re-opening efforts.

Now, turning to American politics. In our view, it is safe to say that the first Presidential debate did not live up to expectations in terms of relevant insights, as the two candidates steered clear of discussing their views on current issues and their policy agendas. Shortly after the debate, everybody’s attention re-focussed on the news that President Trump had tested positive for Covid-19 and subsequently medevacked to the Walter Reed Army. The President’s health concerns add another layer of uncertainties to the elections on the 3rd November. After the Presidential debate, but before the President’s diagnosis a WSJ/NBC survey was conducted, which showed that Joe Biden widened his 8-point lead in the polls, to 53-39%. Joe Biden also led in Florida (47-42%) and in Pennsylvania (49-42%), an NYT/Sienna College poll showed.

US politics will remain in the limelight this week, as investors will focus on President Trump’s health and the vice-presidential debate on Thursday. On the day before the debate, the Fed will publish the minutes, which may offer details whether policymakers would consider increasing the amount of asset purchases. The annual IMF/World Bank meetings will draw some attention as well, as the IMF releases its updated growth forecasts and the analytical chapters of its World Economic Outlook.