Weekly View - Autumnal Fog
The aggressive, formless US presidential debate last week provoked dismay in many quarters, accentuated by the lack of policy substance on view. But in a “debate” that was Joe Biden’s to lose, he managed at least to clear the low hurdle of demonstrating his fitness for the job. On the economic side, latest data showed a weakening of labour market momentum, with fears that millions of the jobs that disappeared during the pandemic might be lost permanently, while president Trump’s covid-19 infection adds to the uncertainty caused by political stalling on much-needed fiscal stimulus. A fresh fiscal package needs to be passed by Congress to restore confidence and anchor the recovery, yet none may be forthcoming before the November election. With visibility lacking, we have moved to protect portfolios by buying USD puts against the safe-haven yen.
Brazil has now lost 11 million jobs since the onset of the pandemic out of an effective workforce of 105 million, while official unemployment is just under 14%. At the same time, new income support measures will cost the country R$400 bn (about USD70 bn) this year and contribute to an overall deficit of 12% of GDP. With Brazil facing acute fiscal problems, we are underweight Latin American equities. Elsewhere, Ant Group’s IPO, which reportedly may happen within the next month, is set to be the largest IPO ever. With Ant’s flotation indicating the growing financial power in Asia, the fintech company’s Asia-centric strategy may be an advantage given the intense scrutiny and resistance Chinese tech firms are facing internationally.
Brexit talks appear to be gathering momentum. Indications that both the UK and Europeans are already drafting a deal document even before an agreement has been reached tallies with our expectation there will be at least a ‘bare bones’ trade agreement. A further good sign was EU assent to allow London clearing houses operate around the continent after 31 December. Nonetheless, considerable uncertainties and obstacles remain, with trust seriously damaged by the UK’s moves to alter parts of the Withdrawal Agreement, while loss of economic momentum in the euro area have led us to buy put options on the Euro Stoxx 50.