06 October 2020
“Tonight, @FLOTUS and I tested positive for COVID-19. We will begin our quarantine and recovery process immediately. We will get through this TOGETHER!”
This was the tweet that hit social media on Friday, with just one month to go until the US elects its next president. As the news sank in and investors unravelled what this might mean, stock markets in Asia, Europe and the US all dipped.
The upcoming election meant that investors were already preparing for more volatility in the markets, but this news threw even more uncertainty into the mix – what effect, for example, will it have on the final month of campaigning? Could it de-rail the scheduled next round of debates between the two contenders? If, as his doctor suggested over the weekend, President Trump is indeed discharged this week, its effect could actually be minimal.
Another question that is difficult to answer is what this illness might mean for the President’s popularity. UK polling company YouGov pointed out on Friday that after Boris Johnson was hospitalised with the illness in April, he did see a small increase in personal popularity – there was no increase in support for his government more generally, however.
And after bouncing back quite quickly over the summer, US jobs data released on Friday suggested that the country’s economic recovery slowed during September; the unemployment rate is now at 7.9% as compared with 14.7% at its peak in April, a definite challenge for the incumbent president as the election draws closer.
During their first live television debate during last week, the exasperated moderator struggled to stop the contenders from devolving into personal insults. Jim Henderson of Aristotle, which manages the St James’s Place North American fund said the contest seemed like a “schoolyard scuffle”, adding : “In a country of 330 million people, the fact that our choice has boiled down to Donald Trump and Joe Biden is nothing short of embarrassing.”
Senate disagreements continue
Negotiations around a new COVID-19 fiscal stimulus bill mirrored this tension. Democrats and Republicans are not any closer to agreeing how large it should be – while the House of Representatives passed a $2.2 trillion bill last week, it’s unlikely to make it through the Senate until it’s closer to the $1.6 trillion counteroffer argued for by the Treasury Secretary Steven Mnuchin. Both parties may agree on the need for more stimulus in order to continue the US economy’s recovery, but the inability to agree on how much has weighed on US markets.
Returning to last week’s news, Sean Markowicz of Schroders, managers of the St. James’s Place Managed Growth fund, wrote: “Barring a serious deterioration in Trump’s health (or Biden’s), this is unlikely to have a significant impact on the US election outcome. Presidential debates seldom change voter preferences and this time should be no different.
“The market’s negative reaction can be interpreted as a sign that Biden’s odds to win the election have increased. Nevertheless, investors should not assume that a Biden win would be unequivocally bad for markets.” In fact, investors would do well to remember that data shows stock markets have a tendency to perform fairly similarly under Democrat and Republican presidents.
Brexit negotiations remain tough
In the UK, meanwhile, Brexit trade negotiations are now entering their final stage. An intensive round of talks in Brussels ended last week without agreement, and European commission president Ursula von der Leyen told reporters that there was “still a lot of work to do.” However, she added: “Where there is a will there is a way.” It is still the issue of a ‘level playing field’ that is the key point of difference – the rules that govern levels of support that governments can give to certain industries.
There is a sense that markets expect a compromise to be reached, although the realistic deadline for that deal is the end of the month, according to European negotiators. On Saturday, Mr Johnson and Ms von der Leyen agreed to become personally involved in the talks to help get them over the line, while the EU’s legal challenge to the UK’s Internal Market Bill is ongoing.
These talks are likely to create more volatility in the short term, but the UK’s longer-term prospects will be dictated by post-Brexit policy decisions, writes Arnab Das from Invesco, which manages several funds for St. James’s Place.
“The Johnson government’s policy decisions in coming months will drive the UK’s long-term trajectory and success or failure, beyond both Brexit and COVID-19.”
He adds that the prospects of the UK as an investment destination will be determined by the government’s “economic, financial, tax and industrial strategies as it returns to the ‘levelling up’ agenda – and above all, whether the UK’s traditional strength as an open, predictable, free market economy is enhanced or weakened”.