The ending week was tough and full of many important and long-term events. First of all, let’s highlight the presidential elections in the United States. Although it took place on Tuesday, the winner is yet to be revealed. On Thursday, the Fed announced its monetary rate following its meeting, and on Friday, the US Labor Department published positive data on employment for October.
Financial markets seemed to completely concentrate all their attention on the results of the presidential elections. They completely ignored the results of the Federal Reserve meeting and unemployment rate data.
Be the end of the week, the winner of the presidential race had not been determined. Joe Biden, a spokesman for the Democratic Party, was in the lead, which seems to have convinced investors that he will be the 46th President of the United States. These sentiments led to a sharp increase in demand for company shares and a growth of stock indices with a simultaneous weakening of the US dollar. This market behavior can be explained by the conviction of market players that Biden and the Democratic Party’s policies will help reduce tensions in foreign trade, primarily in China, which will positively affect companies’ profits, especially technical ones. Investors also hope that Biden will do everything to adopt new measures to support ordinary Americans and businesses.
But back to the outcome of the Fed meeting. It showed that the regulator and its head Jerome Powell deem it necessary to continue to pursue a course of soft monetary policy, which is positive for the stock market and, at the same time, negative for the dollar rate. The final communiqué of the Central Bank did not show anything particularly new. Still, it supported the market’s conviction that the world’s largest Central Banks will continue to pursue a stimulating monetary policy.
Concerning employment data, the US economy received 638K new jobs in October, against the forecast of growth of 600K. It is also essential that the previous September values were revised upward to 672K, which happened for the first time in the last few months. The unemployment rate fell more-than-expected to 6.9% from 7.9% while forecast to fall to 7.7%. Also positive were the average working week’s values, which remained in October at 34.8 hours against the expectation of a decrease to 34.7 hours.
In general, I can say that the week for the financial markets turned out to be not only stormy but noticeably impressive. A distinctive feature is the most substantial growth of stock indices against the background of Joe Biden’s hopes for a victory.
Thoughts and conclusions:
Summing up, I believe that identifying the winner in the US presidential race will play an important stabilizing role. Investors “vote” their deals for Biden, and if he wins, and such a probability is the most realistic, next week we can expect a continuation of the rally in the stock markets, a weakening of the US dollar and an increase in demand for assets of the commodity market.