Big week for the markets
Inside the Broker
Coronavirus, the Presidential debate and earnings
The third quarter earnings season kicked off last week with a stunning set of results from banking giant JP Morgan. Goldman Sachs also produced a positive surprise as did Walgreen Boots. But it wasn’t all good news as Bank of America and Wells Fargo fell short of expectations, and it was a mixed bag from the likes of Morgan Stanley, United Airlines, Johnson & Johnson and Alcoa. This week we expect results from some more big hitters including IBM, Verizon, AT&T, McDonald’s, Netflix, Microsoft, eBay, Tesla and Barclays.
On the data front, last week saw the release of a poor Weekly Jobless number which showed an increase of 898,000 claimants, the highest level since mid-August. This was well above the 820,000 expected and is around four times higher than the weekly average seen in the years preceding the coronavirus pandemic. But US Retail Sales brought a burst of optimism. The headline number for September showed an increase of 1.9% from the previous month – well above the +0.7% expected. This took the year-on-year increase for Core Retail Sales (which excludes volatile vehicle sales) up to 9.1% which is the highest level since this data series began – but it’s worth remembering that this would not have happened without Congress’s fiscal stimulus, brought in to help counter the economic effects of the coronavirus pandemic. This is being wound down. Arguments over the size and scope of a replacement programme continue.
This Friday sees the release of Flash Manufacturing and Services data from the US, UK and Eurozone. These are important numbers as, unlike most data points, they give an insight into what businesses expect in the near future, rather than measuring what has already happened. Otherwise this week’s economic calendar is quite light in terms of significant data, although there is an abundance of speeches from central bankers to look forward to.
The US election
The final debate between Donald Trump and Joe Biden is scheduled to take place this week in Tennessee. The debate will take place on Thursday night in the US, or 02:00 BST on Friday morning.. The topics to be discussed include: Fighting COVID-19, American Families, Race in America, Climate Change, National Security and Leadership, so there’s plenty of scope for disagreement. Joe Biden maintains a decent lead across the polls, although there are a number of swing states which could shift things dramatically. It’s worth remembering that in the 2016 contest between Trump and Clinton, the latter had a lead of around 4 percentage points going into election day. While Ms Clinton won the popular vote by 2.2%, Trump trumped his opponent in the electoral college by 306 to 232 – well above the 270 votes required to win. At the end of last week, the latest forecasts from Real Clear Politics suggest 216 electoral college votes for Biden, 125 for Trump with 197 toss-ups.
Biden maintains poll lead
Without a doubt, the polls still favour the Democratic candidate. In fact, again according to Real Clear Politics, a conglomeration of various national poll trackers calculates a lead of around 10 points, with Joe Biden on 51% compared to Trump’s 41%. Biden’s lead in the polls is substantially higher than the one held by Hillary Clinton four years ago, and it appears that the financial markets are quite relaxed about the prospect of a Democratic win. The general consensus is that a Biden presidency would put up taxes, but this would be offset by higher spending. What the markets aren’t factoring in is an inconclusive result leading to a long delay as postal votes are counted and both sides launch legal challenges. Neither are the markets pricing in a clean sweep by either Republicans or Democrats. This is where one side wins the Presidency along with majorities in the Senate and the House of Representatives. This is generally seen as a negative for risk assets as it gives too much power to the executive, and the potential for big and disruptive policy changes.
Smart News screener
As interesting as both the presidential election and the earnings season are, the main focus for the markets is coronavirus. There is evidence of a pick-up in cases across Europe and elsewhere which is stoking fears that this winter could see the pandemic get much worse. Meanwhile, there’s been a muddled response from policymakers while hopes of an effective vaccine being available soon continue to rise and fall. The importance of the coronavirus as far as markets are concerned becomes glaringly apparent when we take a look at Monday morning’s snapshot of our Market Screener. Talk of coronavirus has dominated financial social media since we set up the screener midway through this year. Donald Trump has usually come a close second, and on occasion pushed ahead of Covid-19. But he’s dropped back significantly. In fact (don’t tell him) but as of this morning he’s fallen below Joe Biden. Previously, we found a correlation between Trump mentions and the political betting markets. This showed that whatever the polls might be saying, Trump mentions correlated closely to the amount of money that bettors were placing on a Trump victory. Like the polls, the betting markets were still favouring a Biden win, but last week saw far more money coming in for ‘The Donald’ than was coming in for ‘Sleepy Joe’.
Follow the money
What about now? According to betting aggregator site Oddschecker.com, there was a flurry of betting for Donald Trump following the negative stories concerning Joe’s son Hunter and the Biden family’s dealings in Ukraine. But by the end of the week the big betting story was the money piling in to back Biden, and against Trump, concerning which states could be flipped to Democrat from Republican and vice versa. Essentially it was bad news for Trump. Could his slump in our Smart News social media score be related, or just be pure coincidence? In the meantime, make sure you keep up to date on all the social media stories that are important to financial markets. Simply click on the Smart News widget at the bottom right of our trading platform. Here you can follow specific feeds and even create your own from your watchlists. Then you can follow the news as it happens in real-time!