WeekWatch – “Tonight, @FLOTUS and I tested positive for COVID-19…” October 2020
“Tonight, @FLOTUS and I tested positive for COVID-19. We will begin our quarantine and recovery process immediately. We will get through this TOGETHER!”
So tweeted Donald Trump on Friday, just one month before the US goes to the polls to elect its next president. Stock markets in Asia, Europe and the US dipped as investors unravelled what the news might mean.
Investors were already preparing themselves for more volatility as the election nears, but the news throws even more uncertainty into the picture. For example, what effect will it have on the final month of campaigning? Or will it de-rail the scheduled next round of debates between the two contenders? Its effect might be minimal if the President is discharged this week, as his doctor suggested might happen over the weekend.
Another open question is what a recovery from the illness might mean for the President’s popularity. That’s hard to predict. But UK polling company YouGov pointed out on Friday that Boris Johnson did see a small increase in his personal popularity after he was hospitalised with the illness back in April. However, there was no increase in support for his government more generally.
Meanwhile, the economic background hasn’t improved a great deal. US jobs data released on Friday suggested that the country’s economic recovery slowed down in September, having bounced back quite quickly over the summer. The unemployment rate is now at 7.9% – which is an improvement from the peak of 14.7% back in April, but still a challenge for the incumbent president as the election nears.
Earlier in the week, Trump and Biden locked horns in the first live television debate between the two contenders. The result was acrimonious, with an exasperated moderator struggling to stop the contest
descending into personal insults. The contest seemed like a “schoolyard scuffle”, said Jim Henderson of Aristotle, which manages the St. James’s Place North American fund, adding: “In a country of 330
million people, the fact that our choice has boiled down to Donald Trump and Joe Biden is nothing short of embarrassing.”
That tension was mirrored by negotiations around a new COVID-19 fiscal stimulus bill. Democrats and Republicans are still far apart on how large it should be – and although the House of Representatives
passed a $2.2 trillion bill last week, it’s unlikely to succeed in the Senate until it’s closer to the $1.6 trillion counter-offer argued for by the Treasury Secretary Steven Mnuchin. Both parties accept the need for more stimulus in order to keep the US economy recovering, but the lack of an agreement has weighed on US markets.
So, what should investors make of last week’s news? “Barring a serious deterioration in Trump’s health (or Biden’s), this is unlikely to have a significant impact on the US election outcome. Presidential debates seldom change voter preferences and this time should be no different,” wrote Sean Markowicz of Schroders, managers of the St. James’s Place Managed Growth fund.
“The market’s negative reaction can be interpreted as a sign that Biden’s odds to win the election have increased,” he notes, adding: “Nevertheless, investors should not assume that a Biden win would be
unequivocally bad for markets.” In fact, data show that stock markets have tended to perform fairly similarly under Democrat and Republican presidents. Investors would do well to remember that as the
Closer to home, Brexit trade negotiations are now entering their final stage. After an intensive round of talks in Brussels last week ended without an agreement, European commission president Ursula von
der Leyen told reporters that there was still “a lot of work to do.” However, she added: “Where there is a will there is a way”. The key point of difference is still the issue of the ‘level playing field’ – the rules
that govern levels of support that governments can give to certain industries.
There is a sense that markets expect a compromise to be reached, although the realistic deadline for that deal is the end of this month, according to European negotiators. Mr Johnson and Ms von der Leyen agreed on Saturday to become personally involved in the talks to help them get over the line, while the EU’s legal challenge to the UK’s Internal Market Bill is ongoing.
While the trade deal talks are likely to create more volatility in the short term, the UK’s longer-term prospects will be dictated by post-Brexit policy decisions, writes Arnab Das from Invesco, which manages several funds for St. James’s Place.
“The Johnson government’s policy decisions in coming months will drive the UK’s long-term trajectory and success or failure, beyond both Brexit and COVID-19.”
He adds that the prospects of the UK as an investment destination will be determined by the government’s “economic, financial, tax and industrial strategies as it returns to the ‘levelling up’ agenda – and above all, whether the UK’s traditional strength as an open, predictable, free market economy is enhanced or weakened”.
Aristotle, Schroders and Invesco are fund managers for St. James’s Place.
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