While yesterday turned out to be a fairly quiet first trading day of Q4, with modest gains for both European and US markets, today is already shaping up to be a more turbulent affair after President Trump tweeted that he, and the First Lady Melania Trump, had tested positive for Covid-19.
The health of US Presidents has always been a hot button issue for financial markets from when Reagan got shot, to when George Bush senior fell ill at a dinner in Japan. This time is no different with market reaction being immediate as US stock futures plunged sharply.
Consequently, European markets have also fallen sharply, though we do appear to be stabilising from the lows of the day. Gold prices as you would expect have spiked higher, while US treasuries have seen yields drop back.
While the President and First Lady aren’t exhibiting symptoms yet, this news blows a rather big hole in Trump’s re-election campaign plans, and could complicate the next 30 days if the President does start to show symptoms, and becomes ill and is unable to campaign. There is also the question of who else might have it in the White House, and whether vice President Mike Pence can step up in Trump's absence.
Whichever way you look, this could well shape events in the Democrats favour after the debacle of this week’s Presidential debate, especially since the Democrats have a decent polling lead. Whatever your views on Trump he’s always been a good campaigner and this is an enormous setback for him.
We already know from our experience here in the UK when Prime Minister Boris Johnson contracted coronavirus the risks that the disease can have on a certain cohort, and President Trump is much older, as well as being overweight, and he is unlikely to take well to being told to rest and isolate, which in turn could well backfire on him, as it did on Boris Johnson.
The next debate with Joe Biden which was due in two weeks on 15th October is now unlikely to happen, and while the US constitution does have contingency plans for the President suddenly becoming incapacitated, this has never previously happened this close to a US election.
You also have to question whether next week's vice Presidential debate between Mike Pence and Kamala Harris, in Utah can take place as concerns over the health of the US political class moves up the US political agenda.
Sentiment was already fragile even before this morning’s news as investors mulled the likelihood of a stimulus deal being agreed, against a backdrop of US economic data, that has by and large been more good than bad, however this could well turn out to be a double-edged sword.
This week’s ADP employment report was to all intents and purposes a fairly positive one, while the latest jobless claims data also continued to fall back coming in at 837k, while continuing claims fell to their lowest level since 27th March.
For all of the optimism around these headline numbers, they are unlikely to inspire any sort of urgency among US politicians to get a stimulus deal done. There is also the added fact that none of yesterday’s numbers will include this week’s announcement from the US airline sector about the potential loss of 32k jobs this month, in the absence of a new stimulus deal, and the expiry of the last federal aid program, as well as Disney’s announcement of 28k job losses at its theme park resorts.
All the while US politicians have continued to play politics with people’s livelihoods, trying to score points ahead of next month’s election, and all for the sake of a few hundred billion dollars, between the two sides. Democrats were able to pass a $2.2trn stimulus bill yesterday, however this is unlikely to get through the Republican controlled house, who think the headline number is too high, which means the stalemate is likely to go on.
The biggest fallers today are in the oil and gas sector with oil prices sharply lower for the second day in a row over rising concerns that a US fiscal deal is unlikely to happen, against a backdrop of rising coronavirus cases, and a slowing global economy. BP and Royal Dutch Shell shares have continued to lose ground, falling further this morning to fresh 25-year lows over scepticism that their new cleaner energy plans will be able to arrest the future challenges of the sector. In their defence at least they are addressing the issues at hand, unlike their US counterparts who seem to have their fingers in their ears.
Today’s other focus is set to be on the latest US employment report for September, and the last one before the US election, as US markets get set for a sharply lower open.
President Trump will be hoping for a decent number in order to make the point that the US economy is continuing to recover from its Covid shock, in line with last months August report which continued the trend of a slow a recovery in the US jobs market, with the unemployment rate falling to 8.4%, and its lowest level since the post lockdown spike to 14.7% in April.
While this is welcome, we can’t ignore the fact that the US labour market looks a radically different beast to the one we saw earlier in the year. We can’t even be sure that the unemployment rate is an accurate reflection of what is going on around the US as a whole.
At his most recent press conference Fed chairman Jerome Powell touched upon this very topic when he said that the US central bank wasn’t even sure how high the real unemployment figure actually was. He said that given the volatility being seen in the data it could well be 3% higher than the headline rate suggests, when underemployment and people who have dropped out of the workforce are taken into account.
Expectations are for 875k new jobs to be added in September, down from 1.37m, and the unemployment rate is expected to fall further to 8.2%, with recent claims data appearing to suggest that the number of people returning to the workforce is slowing down.
In company news Walmart shares are likely to be in focus after the company agreed a deal to sell Asda to TDR Capital Consortium for £6.5bn
Economic data in Europe is likely to act as more of a sideshow with the latest CPI estimate likely to show that the EU is now in deflation, with expectations of -0.2% for September. Core prices are also expected to remain subdued at 0.4%.