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LGT Navigator: Biden catches up in extremely controversial races, but a legal battle is looming

November 5, 2020

The Democratic presidential candidate Joe Biden seems to achieve a narrow majority in the two important swing states of Wisconsin and Michigan. If Nevada and Arizona also definitely go to the Democrats, Biden would achieve the necessary 270 votes and the way into the White House would be clear. But it will not be that easy even if Biden wins, because President Trump and the Republicans will certainly challenge the result. Then a legal battle for weeks is threatening. So far, the financial markets have reacted calmly to the continuing saga.

US presidential election still controversial

After the polls for the race for the White House were often wrong in 2020, as in 2016, the outcome of the election night initially came as a shock to the US Democrats. Anyone who had suspected a “blue wave“ was bitterly disappointed. US President Trump, on the other hand, was once again able to implement what seemed impossible and, in initial evaluations, won over important swing states. The fact that Trump declared himself the winner prematurely is a typical attempt to create facts without a definitive result. But the more votes are counted, the stronger the Democrats become, and Biden seems to be able to win the important states of Wisconsin and Michigan. It now seems highly probable that the Democrats will reach the 270 mark and thus Biden would actually make the leap into the White House, but probably with a still Republican-controlled Senate. But the Republicans should by no means admit defeat and it is highly unlikely that Trump would admit defeat. Rather, there is now the threat of a legal squabble over recounts and the recognition of certain votes. This offers a lot of explosives and uncertainty for capital markets.

Investors remain surprisingly calm so far

The stock markets have so far proved to be quite cool and despite the feared close race and uncertain outcome, there was no slump. On Wall Street, the Dow Jones Industrial gained +1.34% the day after the election and at times traded above the 28 000 mark. By the end of the day, the benchmark had reached 27 847.66 points, which represents a weekly gain of around +5%. The broad market S&P 500 gained +2.23% on Wednesday, closing at 3 443.44 points. Technology heavyweights were again in demand, with the Nasdaq 100 gaining +4.41% - but this is likely to be based on the assumption that Trump remains president.

In addition to the still unclear US presidential election, the interest rate decision of the US Federal Reserve (Fed) will now also be in the spotlight today at 8:00 pm (CEST). 

Recovery in the US labor market is taking hold

American companies in the private sector created fewer new jobs in October than expected. According to the personnel service provider ADP, 365 000 new jobs were reported, while experts had expected a much stronger increase of 650 000. In September, the figure was 753 000, and the data points to a slower recovery. With the pandemic still raging, many companies are likely to be reluctant to fill new jobs.

US services sector grows more slowly

The Purchasing Managers Survey conducted by the Association of American Purchasing Managers signaled a slowdown in the growth trend among service providers. The PMI of the ISM (Institute for Supply Management) fell from 57.8 in the previous month to 56.6 points. The consensus was 57.5 points. In contrast, the PMI published on the same day by the London-based IHS Markit Institute improved from 54.6 points in September to 56.9 points in October.

Corona crisis slows down recovery of the euro economy

IHS Markit's Purchasing Managers Index (PMI) indicated that the economy in the euro countries lost momentum in October. The combined PMI for the service and industrial sectors fell by 0.4 to 50.0 points last month, landing right on the growth threshold. Markit Chief Economist Chris Williamson commented: “The recovery in the eurozone has come to a standstill due to the tightening of measures to stem the second wave of corona infections. If the lockdowns imposed in some eurozone countries were to be tightened further, there was a risk of a relapse into recession.“

Corporate sentiment has also deteriorated again in Great Britain

In the British Isles, the service and industrial companies surveyed by IHS Markit were also more skeptical. Against the backdrop of the tough Brexit negotiations with the EU and the still acute corona pandemic, the purchasing managers' barometer fell by 4.4 points to 52.1 points in October, more than expected. Nevertheless, the PMI is still clearly above the 50 growth/contraction mark.

US withdrawal from the Paris Climate Change Accord is a fact

As of midnight New York local time, the US is no longer a member of the UN climate agreement agreed in Paris in 2015. The United States under President Trump is so far the first and only country that has cancelled the climate agreement. In the Paris agreement, practically the entire world agreed to limit global warming to well below two degrees in order to counteract climate change. In contrast to Trump, a democratic president Biden would rejoin the Paris climate agreement and, like the EU, would aim for a climate-neutral economy by 2050.



Economic Indicators November 5

MEZ Country Indicator Last
08:00 GE Factory Orders (September, y/y) -2.2%
11:00 EZ Retail Sales (September, y/y) +3.7%
13:00 UK Bank of England monetary policy announcement +0.1%
14:30 US Productivity Q3 (non-farm, q/q) +10.1%
20:00 US FOMC interest rate decision 0.0-0.25%

Earnings Calendar November 5

Country Corporate Period
GE Munich Re Q3
GE Lufthansa Q3
FR Veolia Q3
IT Enel Q3
UK Linde Q3
US Bristol-Meyrs Squibb Q3
US Duke Energy Q3


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Source: LGT Bank (Switzerland) Ltd.

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US employment growth remains dynamic at the beginning of the year