The result of the US Election saw no blue wave so the status quo maintains from a stimulus perspective (despite the current spat) and any future Governor of the Fed is likely to be as accommodative.
As suspected, the incumbent has not accepted the result and mounted a multitude of legal challenges but is now being deserted by lawyers as the groundless fraud and impropriety claims remain just that. In his latest move, Trump ‘terminated’ his respected cyber security chief Chris Krebs for contradicting his claims.
The impressive speed of vaccine development means that there are several now in the frame with high efficacy. Hopes of a quick rollout give a glimpse of light at the end of the COVID-19 tunnel and we’ve seen an impressive move in risk assets, prompting some outlandish S&P predictions and a move by the 10-year Treasury to a mighty 0.85%. However, it will still be a long winter as further waves lead to more lockdowns.
Amidst all of this the Asian trading bloc came into being with less acknowledgement by the West than it justifies. 15 Asia-Pacific nations signed one of the biggest trade deals ever after a decade of negotiation and the RCEP, Regional Comprehensive Economic Partnership, is now a mighty force to be reckoned with.
Christine Lagarde and a dovish ECB see no withdrawal of accommodation; ‘must keep stimulus until recovery builds its own momentum’. The PEPP and TLTRO’s will remain the main ECB tools. On the fiscal front, Poland and Hungary continue to be obstructive to the implementation of the stimulus package, rare disunity compared to recent history. An interesting twist was the Supervisory Board of the ECB forcing Piraeus Bank not to honour the payment of coupons in cash of their AT1 paper, entailing conversion of these coco instruments into ordinary equity thereby improving the banks CET1 capital position. The fact that the bondholders losing out were the Hellenic Financial Stability Fund is neither here nor there.
The UK remains the hardest hit economy in the G7 and, when you put a potential no deal Brexit into the mix, things do not look pretty, but we remain hopeful for some kind of a deal. The Bank responded to a second lockdown with further asset purchases, £150 billion was significantly bigger than expected but since we now have forecasts of an overall reduction in UK 2020 GDP of 11% one can see why. In the wake of vaccine news, Short Sterling contracts rapidly moved to unwind discounting negative rates although most still do not see this as a likely prospect anyway. Debt to GDP could potentially reach 105% so Rishi Sunak’s new Green Gilts program might be helpful in opening up a necessary new investor base.
Credit spreads continue to be at or around post COVID-19 tights and any attempt to move wider has been swiftly reversed. Issuance continued apace and a not very green Saudi Aramco $8 billion multi tranche, to part fund promised dividends, attracted $50 billion of bids, ‘use of proceeds’ not deterring investors.