LONDON: Stock markets rallied yesterday and the dollar slid against the euro and pound as US election uncertainty reigned ahead of a key Federal Reserve update. The knife-edge US presidential race has tilted toward Joe Biden, with Democrat wins in Michigan and Wisconsin bringing him close to a majority. But President Donald Trump claimed he was being cheated and has gone to court to try and stop vote counting.
"Likely Republican control of the Senate should put paid to increased corporate regulation and taxation while a new administration in the White House may well dial down tensions with other global superpowers on issues like trade," noted AJ Bell investment director Russ Mould. "This certainly seemed to be the thinking in Asia overnight as Japanese and Chinese equities staged substantial rallies." Europe picked up the baton by extending strong gains won Wednesday that were seen also on Wall Street.
Hopes for a new economic rescue package out of Washington provided support to equities, even though any spending bill will not be as big as previously thought under a Democrat-run Congress. Dealers were also keeping tabs on coronavirus developments with England going into lockdown for a second time, joining France and other key European economies, though observers said they had largely been priced into markets now.
Central bank focus
The Bank of England yesterday unveiled an extra £150 billion ($195 billion) in cash stimulus as it forecast a deeper recession than previously thought for the coronavirus-wracked UK economy. The BoE said recovery would depend also on Britain striking a post-Brexit trade deal with the European Union. The EU yesterday warned that Europe's economy would not return to pre-virus normality before 2023.
The pound rose nearly one percent against the dollar yesterday, also amid uncertainty over the election outcome and a Federal Reserve rate decision, said Michael Hewson, chief market analyst at CMC Markets UK. "Given the current electoral uncertainty it is quite likely that the Federal Reserve will reiterate its determination to support the US economy over the course of the next few months," he noted.
The Fed was unlikely to offer much in the way of specifics at the end of its two-day policy meeting, besides repeating its commitment to keep the benchmark borrowing rate at zero for the foreseeable future. But Fed Chair Jerome Powell could take the opportunity to signal a willingness to find new tools to help the economy, after the bank earlier this year pumped trillions of dollars of liquidity into the financial system and cut the US lending rate.
With America's knife-edge election yet to be called, and the Covid-19 pandemic surging across the nation, analysts will be watching the Federal Reserve for signs of whether it may step in again to help the US economy survive the coronavirus downturn. The Fed's rate-setting Federal Open Market Committee (FOMC) is unlikely to offer much in the way of specifics in its statement at the end of its two-day policy meeting today besides repeating its commitment to keep the benchmark borrowing rate at zero for the foreseeable future.
But Fed Chair Jerome Powell could take the opportunity at his press conference following the meeting to signal a willingness to find new tools to help the economy, after the bank earlier this year pumped trillions of dollars of liquidity into the financial system and cut the lending rate. The central bank chief has been increasingly vocal in his calls for Washington to spend more to help support the recovery after most provisions of a massive stimulus measure passed in March expired.
However Congress failed to reach an agreement on a new spending bill before the election, and poll results thus far show Biden with a better chance of winning the presidency than Trump, while Republicans will likely keep control of the Senate and Democrats the House. "A split Congress will likely lead to a less-than-robust next round of household and business welfare payments and that, too, could weigh on the recovery," economist Joel Naroff said.
Republican Senate Majority Leader Mitch McConnell, who won reelection, said Wednesday he wants to quickly approve new legislation in the "lame duck" session marking the final weeks of the current Congress, but in the past he has favored only limited spending programs. - AFP