Global equity markets slipped lower heading into the end of October, with indices in Europe and the US on track to post small losses for the month. Meanwhile, down under, the NZX 50 is one of the best-performing stock indices, up around 5% with a few days left in the month. Now, after the New Zealand Labour Party stormed to a comprehensive victory in October, the political focus turns to the US for the 2020 presidential election. The election will dominate the month, with ensuing policy measures still on the table – most notably related to the pandemic. While the election is front and centre, there is still plenty to keep an eye on this November. And with this in mind, here’s ANZ’s Month Ahead.
All eyes on the US election
The focal point in November comes early when Americans head to the polls on 3 November in what’s shaping up as one of the more divisive and hotly contested elections in modern times. According to the latest polling, incumbent President Donald Trump trails former Vice President Joe Biden by around 7-9 points in national polls, which, at this point in the election, translates to around an 80% chance of victory for Biden. Nevertheless, President Trump is not without a chance, especially if he can regain the white working-class voting bloc in Midwest states that propelled him to victory in 2016. We see a decent probability that the result of the election won’t be known on Election Day. The main reason behind this is the unprecedented number of mail-in votes cast and how these are processed. In some swing states, including Michigan, Wisconsin, Minnesota, Nevada and Pennsylvania, mail-in votes will only begin being counted on Election Day, and in Wisconsin and Minnesota, it won’t begin until the closing of the polls. Given this, if we do see an uptick in volatility, it could persist into the middle parts of the month.
Will the senate pass a stimulus package
With around a week to go before the election, Senate Republicans and House Democrats have yet to reach an agreement on further COVID-related stimulus. The sides are still around US$1 trillion apart and divided on some key points, including state funding and an unemployment benefit extension. With the election so close, the odds of a deal pre-election are diminishing. Nevertheless, if a stimulus bill can be passed – even if it’s post-election, we suspect it will provide some optimism, at least in the short-term.
Covid-19 case surge posing threat to recovery in Europe — and potentially the US
The second wave of COVID-19 cases in Europe continues to worsen, with record daily case numbers and rising deaths (death rates remain well below first wave), which may begin to have a significant impact on the economic rebound. The resurgence has seen travel restrictions, curfews and other restrictive measures put in place across several metropolitan cities. These restrictive measures, according to mobility tracking data, have resulted in the decline of movement across Europe over the past six to eight weeks, weighing on some key industries. Meanwhile, in the US, we are closely monitoring the rise in cases across some Midwestern states heading into winter, where scientists note that the virus spreads faster indoors. Should we see a significant uptick in the US – the world’s largest economy – concerns around the recovery would grow.
RBA poised to take action; RBNZ to offer details on new funding programme
In November, the Reserve Bank of Australia will meet where it will consider policy action in the form of an interest rate cut and details around potential quantitative easing as the fallout from the Victoria lockdown continues to dampen the recovery. According to the Australian Treasury, the near two-month lockdown will cost the economy nearly AUS$10 billion. Some forecasters are expecting the central bank to do a partial rate-cut where it takes the Official Cash Rate from 0.25% to 0.10%. Additionally, there are expectations that the central bank may increase its quantitative easing programme to include bonds with maturities beyond three years. Elsewhere, the Reserve Bank of New Zealand is expected to leave interest rates unchanged, but we do expect to get some further details on its talked-about Funding for Lending Programme (FLP). The programme would see the RBNZ provide retail banks with low-cost funding with the intent to pass on these lower interest rates to retail investors. In addition, we expect the central bank to remain dovish given the ongoing economic uncertainty.
Portfolio unchanged heading into the election
Heading into the 3 November US election, we have not altered our portfolio significantly. We are overweight international and Australasian equities, while also holding a small overweight to domestic property. Additionally, we hold a small overweight to cash.
Disclaimer: This information is issued by ANZ Bank New Zealand Limited (ANZ). The information is current as at 27 October 2020 and is subject to change. The information is general in nature and does not take into account your personal objectives, needs and financial circumstances. You should consider the appropriateness of the information, having regard to your personal objectives, needs and financial circumstances. This information is not to be construed as personal advice, and should not be relied upon as a substitute for professional advice. Although all the information in this document is obtained in good faith from sources believed to be reliable, no representation of warranty, express or implied is made as to its accuracy or completeness. To the extent permitted by law ANZ does not accept any responsibility or liability arising from your use of this information. Past performance is not indicative of future performance. The actual performance any given investor realises will depend on many things, is not guaranteed and may be negative as well as positive.