The week on world markets ends with a landslide fall in stock indices, as well as a decline in prices for commodity assets and an increase in demand for safe-haven currencies and government bonds of economically strong countries.
After the failure of negotiations on incentives between Nancy Pelosi, speaker of the lower house of Congress, and Minister of Finance Steven Mnuchin, investors finally realized that the US would not see the support measures before the elections. Their disappointment overlapped the US election outcome’s unpredictability, especially after the inauguration of Chief Justice Amy Connie Barrett, who is considered a Trump supporter. The rise in the number of COVID-19 infected in Europe and the United States, which ultimately led to quarantine measures in Germany and France, was the last straw for the investors.
Against this background, they actively got rid of companies’ shares, which predetermined a landslide fall in stock indices. These negative sentiments automatically supported the US dollar and Japanese yen as safe-haven currencies. Also, they caused strong growth in demand for US Treasuries, which, however, fell on Thursday thanks to strong US GDP data for the third quarter. The numbers exceeded expectations, coming out at 33.1% against the forecast of 31.0% and the previous value for the 2nd quarter at -31.4%. The US economy grew 1.7% over the last two quarters. But it seems this positive news will not be able to radically correct the situation and return optimism to the markets, as fears of a coronavirus pandemic and the US election outcome’s uncertainty are too great.
As for my expectations for the next week, it is likely to be volatile. Mostly because of the US presidential election on Tuesday, November 3.
On Thursday, we will expect the Fed meeting on monetary policy and the data on the US economy’s non-agricultural employment on Friday. And of course, the COVID-19 pandemic subject will remain the main focus of the market participants.
Thoughts and conclusions:
Summing up, I predict the next week to be quite difficult and extremely volatile, with the total lack of certainty. If the election results do not lead to massive unrest in the US and the authorities will be able to take the situation under control, this may stabilize the markets. Also, if the employment data finally shows good numbers, this may become the basis for positive sentiment growth and give an impetus to the increase in stock indices.