Markets Shiver Over Virus Resurgence and Election Uncertainty

Markets Shiver Over Virus Resurgence and Election Uncertainty

Published: November 5th, 2020

 Markets recovered on Friday, October 30, from what was a horrid trading session two days earlier. However, the expected pullback did not change much because a combination of factors conspired to instill fear. Ever-surging coronavirus infections and election uncertainty are all sending fresh fears into the markets.

Markets bounced back on Friday, October 30, following a recovery that started a day earlier. But be that as it may, market analysts were quick to warn that any rally may be unsustainable in the short run because of several factors.

Among the factors analysts think will dominate trading in the week of the U.S. Elections are the GDP figures of the Eurozone and Canada, a resurgence of the virus on both sides of the Atlantic, and continued uncertainty about the U.S. elections.

Delayed action by the European Central Bank (ECB) despite the harsh effects of the glaring second wave of the coronavirus pandemic in the bloc is also viewed as an impediment to fluid trading in the few days to come.

ECB Delayed Action Puts EUR/USD Under Pressure

EUR/USD spent most of Friday, October 30, enduring pressure below 1.17 because of the ECB signals. The bank's president, Christine Lagarde, showed concern about the bloc's status regarding the effects of the second wave of the virus on the economy and hinted at a potential double-dip recession.

However, the expansion of the elaborate bond-buying anticipated sooner will have to come a little later in December. Europe's top banker's comments came even as France and Germany instituted a fresh round of lockdowns that came into effect on

Friday, October 30. Other European nations have followed suit by imposing some restrictions on taming the runaway rise in infections.

Meanwhile, the Gross Domestic Product (GDP) figures for the bloc for Q3 are expected to bounce back after the economy slumped by more than 10% in Q2. And, inflation figures for October are set to remain mostly unchanged at 0%.

The bloc's economy was on the path to recovery after the closures occasioned by the pandemic. However, the partial shutdowns in France and Germany, two of the zone's best-performing economies, following a second wave of the disease are sending shockwaves that the 19-member monetary union and the entire 27-member union may experience a second recession.

The GDP, the most comprehensive measure of any region or country's economic activity, is forecasted to climb to 9.4% in Q3. This data follows a decline of 11.4% in the lockdown-influenced Q2 and 3.6% in Q1.

However, inflation is expected to remain unchanged, with the annual consumer price index remaining downbeat at 0.2% year-on-year in October. Overall, the consumer price index will stand at a core yearly rate of -0.3% for 2020.

The rising coronavirus infections in many European countries have prompted German Chancellor Angela Merkel and French President Emmanuel Macron to impose new partial lockdown measures to dampen the spread.

U.S. Coronavirus Cases

On Friday, October 30, the Johns Hopkins University announced that the number of new coronavirus infections in the U.S. rose to a new daily caseload above 83,000. The new numbers pushed the weekly average to a record new peak.

The disease is ravaging most of the Upper Mid-West, coincidentally, the battleground states for the Tuesday, October 3, elections.

With more than 100 million ballots or over 73% of the total votes in 2016 already cast in early voting, especially in southern states, a new FiveThirtyEight model forecasts a Joe Biden and Democrats victory by 89% chance.

Despite the considerable probability margin, investors remain skeptical. One analyst said the reason for the uncertainty is that the U.S. Senate's battle, which is critical for future fiscal stimulus, is remarkably closer.

Meanwhile, the country's GDP figures outstripped estimates with a jump of 33.1% annualized over Q3. The rise is attributed to consumer spending, which stood out. The overall figures are still hazy since elaborate personal income and personal spending figures for October will not be out until Friday, November 6.

Canada and the U.K. Holding Fort

The other aspects causing the uncertainty experienced in the week ending Saturday, October 31, are the economic performance signals coming out of Canada and the U.K.

Canada published its GDP figures for August, indicating a moderation in recovery. The data explains the loonie's back foot sentiment even after the downbeat forex market's mood and the drastic fall in crude oil prices.

Meanwhile, in the U.K., additional regions came under some of the very severe limitations ever witnessed as the coronavirus infections spread. And Prime Minister Boris Johnson is under immense pressure to outline its response, including a national lockdown.

The combined effect of the factors highlighted above has pushed the GBP/USD pair to do battle at the 1.29 level, swaying upwards mostly due to the Brexit talks' optimism. Analysts think that the elections in the U.S. will affect the currency pair in the short-term.

With a critical resistance at 1.2980, both a high point and a low point in October, analysts see the pair breaking higher. However, the chance of an upward movement is dependent in no small extent on the outcome of the election.

Markets hope for a decisive result, preferably putting Biden in the White House and giving Democrats control of the Senate. However, while Biden has an unassailable lead in the national polls, the same cannot be said about several critical states.

The latter factor is critical for passing a huge coronavirus package package, pushing the safe-haven greenback down, and the GBP/USD higher. However, if there is no clear winner and the elections go to the wire, the dollar would gain ground.

Final Thoughts

The U.S. Elections will headline the week ending Saturday, November 7. And though these elections are causing uncertainty in the markets, a few other factors will weigh on the markets' performance. For instance, the surging coronavirus cases in both the U.S. and Europe, and the latest GDP figures from the Eurozone and Canada, would significantly influence how several currency pairs behave both in the near- and long-term.

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