October 2020 Market Recap

Chris Tubby, October 31st, 2020

October has been an interesting month with the financial markets constantly in a will they or won't they situation, regarding the agreement of a second fiscal stimulus package in the U.S.

The Democrats wanted to add $2.2 trn as a stimulus package with the Republicans preferring only around $1.8 trn, what is $400 bn between friends! It was not just that difference but also where the money would be used that prevented a deal being agreed... and who would take the credit for getting a deal done so close to the election. Meantime, Powell, Chair of the Federal Reserve kept his hands in his pockets and emphasised it was up to the government to commit to stimulus rather than the Fed through monetary stimulus.

The markets kept stocks high and also oil as negotiations continued, however, there was a tight deadline with the November 3rd election nearing and ultimately, with government going into recess for the election it became obvious that the stimulus package would not happen before the election sending the markets into free-fall, having their worst week since March. Oil and gold followed stocks lower with oil falling over $6 from recent highs back down to the $35 level. Gold fell as investors released equity to finance or invest in other asset classes. The USD also played its part in moving the markets. The expectation of a second stimulus package weakened the USD as investors became concerned regarding the level of debt the U.S government was taking on and when it became clear it would not happen before the election the USD began to recover.

The election itself has taken a back seat to COVID-19 with cases dramatically increasing again as the western world nears winter (so obvious!) and local lockdowns having the potential to turn into national ones which is already the case in parts of Europe, including the UK from Thursday. I expect lockdowns to remain stop/start until March of next year. There seems to be progress in testing for the virus and positive signs a vaccine is not far away. However, it will take the best part of 2021 to produce enough and even so the virus could emerge annually as with the usual flu.

China has recovered very well, although any global national lockdowns will impact them again, to a lesser degree than earlier in the year. Taiwan is the envy of the world regarding COVID cases, or lack of them I should say.

Europe and the UK seem to have made progress regarding a trade agreement although this could still end badly. The key issue seems to be around fishing with progress made around government supporting companies and financial regulations.

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Chris Tubby

About the author: Head of Trading at Colmore FX, Chris is a leading London based financial markets expert with 40+ years of trading and market making experience. He became a senior trader at the age of 22 and has gained extensive experience trading at major European banks.

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