Markets rally as US political deadlock continues

It’s been an incredible week so far and there’s still plenty more action to come, with Trump preparing the defence of his presidency as Biden closes in on 270 electoral votes.

I find it remarkable how relaxed these markets are under the circumstances. This situation is anything but normal and should it boil over and faith in the system be undermined, the markets will be left very vulnerable. A 7% rally in the US on a week like this is absolutely extraordinary. Hopefully, the faith investors have shown is rewarded because the last thing we need is an extremely messy conclusion to what has already been a hostile and divisive election.

As was to be expected, Trump is not giving up without a fight and his lawyers are hard at work trying to stop the count and gather evidence of voter fraud. They had been successful in temporarily halting the mail count in Philadelphia, but a challenge by the Democrats in the Pennsylvania Supreme Court was successful, meaning it could resume. Meanwhile, Georgia and Michigan have both dismissed another lawsuit from the Trump campaign.

Clearly, this is how it’s going to go over the next couple of days as the Trump campaign relentlessly tries to prevent Biden and the news agencies from declaring him the winner. It will be interesting to see how investors respond if his lawyers have any more success but as of now, they seem to be viewing it as nothing more than a desperate attempt to delay the inevitable.

Fed to hold until after the election

It’s easy to get completely lost in the election and forget that there’s anything else going on in the markets but, even without it, this would have been quite an action-packed week. The Bank of England increased its quantitative easing program by £150 billion this morning and revised down growth forecasts for this year and next, on the very day that the country entered its second national lockdown.

The Fed is extremely unlikely to join the easing club in the middle of a controversial election week, with the RBA having also cut interest rates and announced new bond purchases earlier this week. Like the ECB, the Fed is likely to wait until December when it has fresh economic projections. And who knows, they may even know who the president is going to be for the next four years. Although Trump’s lawyers may have something to say about that.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/