Shares up, dollar down
For a group who were supposedly big fans of the outgoing US President’s economic policy, investors are surprisingly gung-ho about the new guy. The anticipation, then the confirmation that Joe Biden will take over in January has sent US shares 9% higher in a week. It has not been much fun for the US dollar though.
A stack of assumptions is behind the “Biden bounce”. Biden will have a more balanced approach to international relations; his lack of an overall majority in Congress will constrain any temptation to increase corporate taxes and whip the big tech firms into line; a decrease in domestic tensions will improve the commercial environment; a more serious effort to control the tragic Covid-19 pandemic could bring positive economic results. There are nevertheless several uncertainties that pose threats to this utopia, not least the possibility that the outgoing president will follow a scorched earth strategy to make life difficult for his successor.
But those concerns are for tomorrow. Today the future is bright for investors, global risk-asset valuations are on the rise and safe-haven currencies are in retreat. The weakest of the lot over the weekend and in the Far East this morning was the USD, down by an average of 0.6%. In the penultimate slot, the JPY is 0.5% lower. Those two are also the laggards over the last week, down by 2.6% and 1.4%.
Biden and Brexit
The election of Biden comes at an awkward time for the UK government, with the final episode of Brexit scheduled to air in the midst of the US presidential transition. Questions are now being asked about the eventual details of the Internal Market bill, which goes to a vote in the House of Lords today.
Biden is not the only one to have criticised the bill as a threat to the Good Friday peace agreement but his objections carry more than the usual weight. If Britain does indeed end the year without an EU trade agreement, it will be more reliant than ever on cutting a deal with the United States. A hostile new president would not simplify those negotiations.
In contrast with the Biden bounce, the Boris bomb is on the back burner for now, because there are bigger and more exciting events to occupy investors. On average, the GBP is very nearly unchanged from Friday morning, up by two thirds of a US cent and flattish against the EUR, CHF, CAD, AUD and NZD. The Northern Scandinavian crowns and South African rand occupied the podium this morning.
Whilst it would be an exaggeration to say Friday’s US employment report passed by unnoticed, it did not offer much of a distraction from the election count. It did, however, mean a pause to the dollar’s retreat.
Nonfarm payrolls increased by 638k in October and unemployment fell by a percentage point to 6.9. Both numbers beat the forecast. In Canada, the equivalent numbers were 84k and 8.9% and were softer than expected. The Loonie was unaffected.
At the weekend, Turkey’s President Recep Tayyip Erdogan fired the head of the central bank and accepted the resignation of Finance Minister Berat Albayrak, his son-in-law. The lira gapped 1.7% higher when it opened this morning, in anticipation that Turkish monetary policy will become less unconventional.