The Week Ahead: How to make a child eat their vegetables
The wires have been hit with Brexit headline havoc this weekas the competing tribes tell the world and their audiences how close and far apart they are in getting a historic agreement.Brexit has spawned many colourful and intemperate headlines over the last few years but perhaps the current ongoing negotiations as we approach the next major ‘deadline’ can be best summed up best by an EU source.
He characterised recent discussions between both sides as one of EU ministers trying to figure out how to make a child (the UK) eat their vegetables. The child knows the vegetables aregood for them, but they don’t like the taste so they endeavour to disguise them in another form to make them seem more appetising. As we wrote in the Week Ahead, the direction of travel always seemed to point to more talks beyond the EU summit this week. Given the prior threat from the UK Government to walk away by today if no progress was made, sterling has reacted positively, even if this outcome is largely priced in.
Third quarter earnings for US banks kicked off in a big way this week with BlackRock beating earnings estimates and assets under management surging to a record, while JP Morgan topped revenue expectations, bolstered by slimmer loan loss provisions and a trading boom. A similar bonanza was seen at Wall Street titan, Goldman Sachs, helping the bank to post its strongest profitability since 2010. Whether this exceptional trading environment will continue into 2021 once investors have recalibrated portfolios is the billion-dollarquestion.
The on-off US stimulus debate rumbles on with the stalemate between the Democrats and Republicans no near any concrete conclusion. In fact, there is not only division between these two sides, but also now the Republicans with Senate leader McConnell preferring a step-by-step approach, whereas President Trump wants a bigger package. Meanwhile, Treasury Secretary Mnuchin yesterday said getting something done before the election would be difficult, which stocks didn’t take kindly to.
Still, the polls are forecasting a decisive November election victory for Trump’s Democratic challenger Joe Biden who in the event of becoming the 46th President, is expected to unleash more than $2.2 trillion of fiscal stimulus. A blue wave election outcome, where Biden wins both houses of Congress may also mean it is easier to raise corporate taxes, undo Trump’s financial deregulation and support renewable energy. This narrative has seen utilities gain a bid recently, while energy is lagging as the pain from green initiatives looms. Of course, markets have a poor record of predicting vote outcomes but betting odds now place Biden’s lead at the widest point since the 2020 contest kicked off this year, with less than three week to go to polling day.