Take a deep breath
What you need to know this week in 5:36 minutes - Nov 09, 2020
They say when America sneezes, the world catches a cold. This week America took a breath of relief and the whole world exhaled. The Presidential election comes to an end (sorta?) and Mr. Market can start making plans for what’s ahead. While control of the legislative branch remains an open question, Mr. Market still has a bit of anxiety about what’s to come but he can definitely relax a bit, crack open a bottle of Basil Hayden’s and look to the upcoming economic reports to be released this week.
The election is over, or is it?
The Senate race continues
A deeper look into the economic recovery
What's going on?
It ain’t over till it’s over
It seems all but confirmed that former Vice President Joe Biden will become the 46th President of the United States of America. As America voted, it felt as though the world took a big deep breath and exhaled relief. However, the election is not over, as the Trump administration pursues legal proceedings in hopes to overturn the election.
To the Supreme Court! Well, not so fast. While Trump is certainly known to be a litigious fellow that’s just not quite how the legal system works. Under the Constitution, state legislatures are responsible for creating voting rules for federal elections. Most of the litigation will occur in the state courts where there are already long standing processes in place for challenging election results. While each state has their own process, litigation is unlikely to make it past the state supreme courts. The Supreme Court typically avoids getting involved unless there are votes of questionable validity that would make a difference. For a full guide on how the proceedings will proceed and current status of the lawsuits check out ProPublica’s Guide to 2020 Election Laws and Lawsuits.
Politics aside, shoutout to Kamala Harris, the first female Vice-President elect in US history!
The show goes on…
The election doesn’t end with the President, while Democrats will retain control over the House of Representatives, votes are still coming in to decide control over the Senate.
Analysts anticipated a Biden victory but the prospects of significant structural policy changes (e.g., healthcare policies, industry regulation and increased taxes) were dampened by an expected Republican-controlled Senate. Republicans currently hold the lead with 48 seats to the Democrats 46, with 2 seats belonging to independents (that are expected to lean Democrat). With votes still being counted in Alaska and South Carolina to determine the senate seats, two Senate races are still pending to be concluded in Georgia and will be heading to a runoff vote on January 5th. Assuming that Alaska and South Carolina go to Republicans, Democrats will need to win both seats in Georgia to get a split chamber (50-50), with the Vice-President acting as the tie breaker. Let’s be clear, this is a BIG deal. A unified executive and legislative branch means Democrats will be able to move their agenda along with limited opposition.
Okay, but what the economy?
This week a number of domestic and international data points will be released providing further insight into how countries are dealing with COVID and the effectiveness of the strategies taken.
Monthly US Consumer Price Index (CPI) report, which tracks changes in the cost of living by measuring the average change in prices for a basket of goods and services over time. The CPI is the most used measure of inflation and thus, as a proxy of the effectiveness of the government’s economic policy and execution.
Monthly Producer Price Index (PPI), which tracks changes to the cost of production by measuring the movement of average selling prices of domestic goods and services over time. It is typically used by investors as a proxy for upcoming inflation.
Monthly Consumer Sentiment Index (CSI), which reflects business conditions as determined by consumer opinion, including how the public feels about their personal finances, and the direction of the economy in the short and long term.
China will also be announcing its CPI and PPI, as well as credit data. Remember, China is being looked to as a blueprint for the recovery (see what you need to know, Oct 20, 2020).
The UK, Philippines and Malaysia will be reporting Q3 GDP data.
The Central Banks of Mexico, Egypt, New Zealand and Perú, amongst others, will be making interest rate decisions, while analysts will be watching what happens in Turkey after President Erdogan fired the Central Bank’s Governor this weekend.
But what does it all mean?
The Market is viben as a Biden victory means we have some certainty and a less divisive agenda moving forward. Biden’s plan may include: taxes, big-industry regulation, environmental protection, more open international trade. It also means less Twitter-driven abrupt market swings and easier to forecast political direction. The key to market stability is balance. A blue wave could overtake the Senate, the House AND the Presidency. Too much power on one side may not be great for the market as policies can go unchecked by the opposition.
The American CPI, PPI and CSI will provide further depth on how the US economy is holding up and recovering. As the economy shows signs of recovery and the CSI is running at its highest since the beginning of the pandemic, a slight uptick in consumer sentiment is expected despite a second wave of COVID, as the American people focused on the results of the Presidential election. With this political white noise almost behind, economic sentiment will be once again driven by the Nation’s response to the pandemic, as it will be the determining factor of how quickly and effectively the US recovers.
China got a head start on the recovery compared to the rest of the world and analysts are continually looking at China's performance as an indicator of effective methods for handling the recovery. Chinese CPI, PPI and credit reports will help determine the strength of their V-shaped economic recovery.
What’s an investor to do?
After a month of high volatility and uncertainty, Mr. Market can finally relax a bit and do some goat yoga. The market’s focus this week will be on getting some much needed closure on the Presidential election and the Senate runoff in early January. As long as the Trump administration holds out on conceding the election, there will be continued volatility albeit, at lower levels. Mr. Market isn’t kicking back completely though as the open status of the senate race will keep him a bit anxious. When a single party controls both the executive and legislative branches, it can lead to wide-sweeping changes with little consideration for opposing views.
Emerging markets may pop! Many emerging markets have (hopefully) left the worst of the COVID pandemic behind, and are looking for opportunities to capitalize on low-interest rates to drive recovery and growth. As America is expected to move away from an “America First” approach and embrace Democrats' typically moderate and pro-international relations strategy, emerging markets may experience a boost in economic support and friendlier trade opportunities. If you are considering investing in emerging markets an easy way to get exposure is through ETFs such as EEM, VWO, IEMG.
For the curious investor:
Palantir (NYSE: PLTR) will be reporting their first-ever earnings report on Thursday. The big data analytics company primarily services the government and the DoD. The report will provide insight into government spending on defense, and insight from Palantir on the impact of the new administration. Furthermore, the earnings will provide the first glimpse into Palantir’s performance and potential growth.
If you didn’t know, now you know
In late September 2020, fighting broke out between Armenia and Azerbaijan over the disputed enclave of Nagorno-Karabakh. While each side fervidly blames the other for initiating the clash, what we do know is that military outposts, villages, and the city of Stepanakert in Nagorno-Karabakh were struck by artillery fire and missiles. With military and civilian casualties on both sides, both countries have declared martial law and Armenia has called a general mobilization of its armed forces. The situation is heightened due to Russia and Turkey’s relationships with the involved parties and risk of potential entanglement. Recent developments deserve immediate global attention to help de-escalate a wider bellic engagement that could hastily spiral out of control. Should a cease-fire and foreign interaction not happen shortly, consequences such as civilian and economic infrastructure destruction could lead to a full blown economic and humanitarian crisis.
This summary only covers the surface of the conflict, to read more click here.
What we’re reading
Kitchen Confidential: Adventures in the Culinary Underbelly by Anthony Bourdain
The Surprising Science of Happiness (Ted Talk) - Dan Gilbert
Some good news everyone!
In the search for the Council of Foreign Affairs, we discovered this jewel that we thought everyone should see
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