Weekly Market Pulse - Week ending November 6, 2020

Market developments

Equities:

Markets rallied strongly after election uncertainty faded somewhat, recovering the heavy losses incurred the previous week. The odds favour Joe Biden, who needs to win just one more state given current projections. Given the significance of mail-in ballots, votes could take days or even weeks to tally. In terms of the Senate race, hopes of a “blue sweep” have rescinded with Republicans looking to hold a majority. The S&P 500 rose 7.32%. The S&P/TSX Composite rose 4.51%.

Fixed income:

Bond yields fell as expectations of a “blue sweep” faded. The U.S. Treasury 10-year yield fell 6 basis points, ending the week at 0.82%. The Government of Canada 10-year yield fell 2 basis points ending the week at 0.65%.

Commodities:

Oil prices rose 4.75% on expectations that the OPEC+ coalition will delay its planned output hike amid a rising coronavirus case count. Benefitting from a weaker dollar, gold rose 3.86%. Strong activity in China supported copper rising 3.35%.

Performance (price return)

As of November 6, 2020

Macro developments

Canada – Employment gains amid increased restrictions; International merchandise trade unchanged

Employment rose 84K in October even with the tightening health measures. The loss of jobs in accommodation and food services was offset by a broad-based gain across other sectors. The unemployment rate was 8.9%, down slightly from 9.0% in September.

Exports and imports both rose 1.5% in September, leaving the merchandise trade deficit little changed at $3.25B. Exports of lumber rose, while imports of crude oil increased.

U.S. – Presidential election projections favour Biden; Senate likely to remain in control by Republicans; Fed holds steady; Strong employment gains in private sector

Democratic candidate Joe Biden is on the verge of winning the presidency. According to Bloomberg’s projections, Biden is currently in the lead with 264 projected electoral votes out of the 270 required, compared to President Donald Trump’s

214. Assuming Biden is able to hold his current position, his best chances to take it lie in Nevada, Pennsylvania, or Georgia, holding the narrowest of leads in all three states yet needing to win just one.

In the Senate race, projections show that Republicans are expected to hold the majority. Democrats had a chance to flip three seats to claim majority, but those chances are slim now. Control of the Senate is critical for advancing fiscal policy, and the current situation suggests major policy changes proposed by Biden could be obstructed by Republicans.

There were no new announcements at the Fed meeting last week. Chairman Jerome Powell’s tone toward the economy is more cautious with the resurgence of the second COVID-19 wave, and he reiterated the need for more fiscal support from Congress. The Fed said they had discussed options on modifying their asset purchase program, which suggests potential changes could be coming at the next meeting in December.

Non-farm payrolls rose 638K in October, following the revised 672K gain in September. Unemployment declined to 6.9% from 7.9% in September as a result. Private payrolls gained strongly during the month, rising 906K. Notable gains were reported in leisure and hospitality, professional and business services, retail trade, and construction. Government employment fell by 268K.

International – China PMI rises on strong domestic recovery; Eurozone retail sales falters; Germany factory orders and industrial production rises

The Caixin China General Composite PMI rose to 55.7 in October from 54.5 in September. The Manufacturing PMI rose to 53.6 from 53.0 and the Services PMI rose to 56.8 from 54.8. A sharp increase in business activity was noted by both manufacturers and service companies, which reported rises in output and new work. The weak spot lies in foreign markets with major export countries experiencing a second wave. Hiring was solid: the service sector saw strong hiring activity to accommodate the increase in new work, while the manufacturing sector was more cautious to contain costs. Business confidence rose reflecting expectations the impact of the pandemic will subside. Confidence in manufacturing rose to the highest since August 2014, while services rose to the highest since August 2012

Euro area retail sales fell 2.0% in September after rising 4.2% in August. The decline was broad-based, with consumers spending less on food, non-food, and fuel products.

Germany factory orders rose 0.5% in September, following a 4.9% gain in August. Domestic orders rose 2.3% while foreign orders fell 0.8%. New orders in the automotive industry rose 5.1% and are now 5.8% above pre-coronavirus levels in February. Meanwhile, orders for machinery and equipment decreased 3.7%.

Germany industrial production rose 1.6% in September, following a 0.5% rise in August. The gain was driven by consumer goods rising 3.0% and capital goods increasing 2.2%. Production in the automotive industry rebounded 10.0%, recouping the decrease seen in August, though it remains 15% below the pre-pandemic levels of February.