Oct 05 2020

US President Donald Trump tested positive for coronavirus last week along with his wife and one of his closest aides, throwing an already volatile campaign into deeper disarray, just one month before the election.

He flew by helicopter to be treated at the Walter Reed National Military Medical Centre, and though he has made several appearances by video and in his car, the state of his condition remains clouded by some confusion over his treatment. While a member of his medical team briefed journalists on Sunday that the President could be released from hospital as soon as Monday October 5th, the White House physician, Sean Conley, disclosed that he was given supplemental oxygen and has received medication that is typically used in more severe Covid-19 patients.

Democrat candidate Joe Biden still has a healthy polling lead per the chart below, but this has been clearly narrowing in recent months – particularly in the all-important ‘swing states’. We await to see what impact if any this latest development has on voter sentiment, but all being well, other factors will continue to drive the election narrative through to the 3rd November:

One of those factors is the continued stalemate between Republicans and Democrats over an additional stimulus package. The Democrat-dominated House of Representatives passed a $2.2tn stimulus package last week that contained provisions for renewed $600 weekly unemployment benefits and $1,200 one off payments to all adults, but this was largely symbolic as the Republican-controlled Senate has vowed to reject it.

Hopes for some sort of compromise have fallen short thus far and the President’s illness has added to concerns that no deal will be made before the election. US workers’ incomes have begun to slide downwards following the expiration of the first stimulus package per the chart below, and this combined with moderating growth in the labour market could prove a toxic cocktail:

Tens of thousands of job cuts were announced by blue-chip companies in a warning sign to this effect. Amongst others, Walt Disney said that 28,000 US workers in its resorts business would lose their jobs, and airlines American Airlines and United Airlines warned that more than 30,000 jobs would be lost without immediate additional federal aid. These losses are not limited to the US, with Royal Dutch Shell to cut up to 9,000 jobs – around 11% of its workforce – and Cineworld set to make 5,500 UK jobs obsolete at least until next year, as it looks to close all of its cinema screens again due to a lack of blockbuster film releases.

The US added 661,000 jobs in September and the unemployment rate fell by more than 0.5% to 7.9% - both much slower paces than between May and August and the latter partly due to workers simply leaving the workforce and dropping out of the dataset. The report reflected good gains in private sector jobs, but large losses in the public sector, particularly in state and local education due to budget cuts and overall, the job shortfall since February stands at a still large 10.7m:

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Equity markets were generally brighter this week after last week’s sell-off, with only Japanese equities of the major regions falling in local currency terms. Sterling rose in value this week however as some cautious optimism emanated from Brexit negotiations, meaning in Pound terms, most overseas equity markets provided at best limited gains. European equities were best with a 0.87% rise, while Japanese equities fell by 2.25% after the Yen fell by 1.54% against the Pound.

UK equities finally attracted some positive news flow, with the FTSE 250 performing particularly well with a 2.09% gain and the FTSE 100 rising strongly in relative terms by 1.11%. Despite not entering the Brussels ‘tunnel’ as mentioned last week, Brexit trade talks remain active with both Boris Johnson and EU Commission President Ursula Von Der Leyen pledging to work together as closely as needed to bring a proposal to the table in time for the 15th October EU Council summit.

At the start of this week (5th October) these gains are being held despite Public Health England reporting thousands of previously missing positive test cases over the weekend due to a data processing error. Perhaps more importantly than the positive case numbers, hospitalisation and fatality data remains well controlled, with the latter running at a 7-day average of 51, compared to a peak of nearly 950 in April.

This week will see ‘final’ PMI survey data, expected to differ little from the ‘flash’ data that showed growth moderating as reimposed social distancing measures start to bite. However again, it will be a combination of updates on President Trump’s condition and on the progress of a new US stimulus package that will most likely drive market returns, and we will be watching both closely.

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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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Andrea Barker
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