Market Updates

The potential outcomes of the November U.S. election could have starkly different policy ramifications. What will this mean for equity markets? Blackrock believe simplistic narratives about the overall market direction are best avoided.

Equities were volatile last week as political drama took central stage, with the noise around the US presidential debate and President Donald Trump’s COVID-19 diagnosis dominating investor focus.

The U.S. election is taking place against a historic backdrop of a pandemic, recession and domestic strife. The outcome could have significant implications for key policy areas: fiscal stimulus, public investment, taxation, regulation and foreign affairs.

Increases in COVID-19 infections, as well as the uncertainty of the US presidential race and Brexit negotiations, are all providing significant overhangs for markets right now.

BlackRock see a higher inflation regime in the medium term after a decade of inflation persistently undershooting central bank targets. Three new forces are at play: rising global production cost, new central bank policy frameworks that allow for inflation overshoots and greater political pressure for keep rates low in a high-debt environment.

In Europe, rising COVID-19 cases are weighing on sentiment, whilst the upcoming presidential election, delays over fiscal support, and some disappointment over the Federal Reserve’s (Fed’s) commentary at its latest policy meeting have all added to a ‘risk-off’ tone in the in the United States,

The broad macro backdrop has been improving, risk assets have rallied a long way, and increasing market volatility points to risks that investors will need to navigate as the U.S. presidential election draws closer.

The United Kingdom is firmly back in focus for investors in Europe. Brexit risk is on the increase as we edge closer to the deadline of the European Union (EU) Council Summit on 15 October with no real positive movement towards an agreement.

Markets have rallied sharply from their virus lows, driven by the policy revolution and economic restart. Tighter valuations increase the risk of volatility, particularly ahead of divisive U.S. elections. Last week’s equity selloff illustrates this.

This week is poised to be a dramatic one for the EU and the United Kingdom, with a five-day stretch of face-to-face discussions in London, referred to as a ‘moment of reckoning’.