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Tricky start to the fourth quarter

Market Update

Tricky start to the fourth quarter

What a way to say goodbye to the third quarter and start the fourth! Early September saw both the Nasdaq 100 and S&P 500 hit record highs before spending the next three weeks in free-fall. Equities managed a modest recovery over the last few days of the month and the third quarter was crowned by a rancorous presidential debate between Donald Trump and his challenger Joe Biden. There was plenty of sound and fury, but little clarity. Most commentators considered it a truly unedifying spectacle which brought the whole electoral process into disrepute, which is quite something when you think about it. But as far as betting markets were concerned, it was generally agreed that Biden came out best. In fairness, expectations were extremely low concerning ‘Sleepy Joe’s’ ability to square up to ‘The Donald’. But according to betting aggregate site, the probability of him winning the election rose after the event to 58% while Trump’s fell to 42%.

Covid hits the White House

On Friday morning Mr Trump announced that both he and the First Lady, Melania, had tested positive for coronavirus. The news triggered a sharp stock market sell-off, although all the major indices rallied off their lows as the session proceeded. But the situation has thrown everything up in the air. Reports concerning Mr Trump’s condition were initially contradictory. By Monday morning the prognosis had improved, but there’s an understandable worry that any news about the president’s health could have a degree of spin attached. So, the path to the election on 3rd November is unclear. As things stand, it seems most unlikely that the election will be postponed as that would require majority support in Congress. But Trump should be in quarantine for the second debate which is scheduled for 15th October. This could still go ahead if the president is well enough, although he’ll either have to do it virtually or stand in a Perspex box. As for Trump’s campaigning plans, all of the events, including those being led by Trump family members, have been postponed or will happen virtually. This is a serious set-back for the president as he’s at his best when playing to crowds of his own supporters.

What happens next?

On Wednesday there’s a vice-presidential debate between Mike Pence and Kamala Harris. This has taken on considerable significance as the vice-president automatically assumes leadership should the president become incapacitated. Election betting markets were suspended on Friday, but not before punters rushed to back Pence to become the next president.

Market events

Last Friday also saw the release of September US Non-Farm Payrolls (NFP). This was the last payroll update ahead of the election and there can be little doubt that President Trump would have wanted to see a bumper number. Unfortunately, that wasn’t to be. Payrolls rose by 661,000 against an expected increase of 900,000. This was the first time that payroll gains have come in below 1 million since April’s disastrous figure showing a drop of 20.5 million jobs. Since then, payrolls have had an overall gain of 11.2 million so there’s still a long way to go to make back the losses due to the coronavirus pandemic. But there was some good news from Friday’s numbers. August’s data was revised up by 118,000 and the Unemployment Rate dropped unexpectedly to 7.9% from 8.4% previously. But President Trump and coronavirus dominated the news flow, and this could be seen clearly from a look at social media mentions picked up by our Smart News widget. This was still the case on Monday morning as you can see from this snapshot of our Market Screener.

Beyond Trump and Covid

So, it’s obvious what the main topics of conversation are as we start the week. But there are also a few economic events worth noting:

  • Federal Reserve Chair Jerome Powell will be speaking on Tuesday, as will the European Central Bank President Christine Lagarde. Fed-watchers feel that this will be an opportunity for Mr Powell to push for more fiscal stimulus from Washington as the benefits of the $3 trillion relief package agreed at the start of the pandemic fades. The Federal Reserve is understood to be concerned by the current high level of unemployment, together with low inflation. The latter could fall further as the price of crude oil continues to decline. The Democrats have so far failed to push through any additional packages as both the White House and congressional Republicans consider them well above the $1 trillion limit that they feel is acceptable.
  • Also on Tuesday, the Reserve Bank of Australia will announce its decision on interest rates and is widely expected to keep its key Cash Rate unchanged at 0.25%.
  • We have the minutes from the last Federal Reserve monetary policy meeting on Wednesday ahead of the vice-presidential debate.
  • US weekly jobless claims are on Thursday.

Make sure you keep ahead of everything that’s going on by clicking on our Smart News widget in the bottom right hand corner of the trading platform. Here you’ll see all the top social media commentary regarding the top events and topics that are currently influencing financial markets.  




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