As the US election takes centre stage, the potential result has become much clearer.
Biden’s Blue Wave appears to be gathering more support and the likelihood of a clear win would remove any justification for his opponent to dispute the final result. Whatever the result, this election is doing much (along with the past few years) to demean and dilute the respect previously held for the Presidential post. Both sides have similar plans to provide the fiscal support needed by the US economy but, of course, differ on exact size and mode of execution enabling plenty of political bickering to continue.
The EU/UK talks regarding ‘the deal’ continue to be painful with no concrete progress; it still seems illogical that tiny industries remain a huge stumbling block but some of these divisions are historic and go back to way before the EU came into existence. As the virus reappears across Europe, it is apparent that complete lockdowns are to be avoided due to the severity of the economic damage that they inflict but governments are certainly having a hard time getting their measures right or implemented. The number of people not surviving seems a more rational measure to focus on rather than the number that test positive.
The damage inflicted first time round shows up clearly in the numbers and, whichever way you look at it, double digit reductions of GDP are dramatic. Forecasts by economists keep being readjusted, I’m not sure that they have much value. The MPC certainly has a wide range of views and Governor Bailey has been rattling his toolbox again consulting banks on the effect of negative rates, quickly reiterating that he does not intend to actually implement them; I hope he consults building societies too. One member maintains that negative rates have been a positive elsewhere but I don’t think the moribund banking systems of the Eurozone and Japan are evidence confirming that view.
Against this grim backdrop, credit markets remain well supported and touched new post-March tights before swiftly retreating a little. The primary market continues to produce a steady stream of new issues for investors to tackle and ‘difficult’ names, such as Heathrow Funding and Intercontinental Hotels, came to market to find strong support. Despite being poorly handled, a HY multi tranche from Rolls Royce received huge support (the GBP tranche attracting 350+ investors and a book of 10X apparently). Just Group came with a new issue that was apparently ‘green’, cue much market head scratching at how T2 capital qualifies for such an accolade. We did see an inaugural sustainable GBP bond from Enel with a coupon explicitly linked to future renewable capacity.