Investor relief as Trump refuses to quit

European stocks have opened strongly once again, despite the US election dragging on as the Trump campaign launches challenges and demands recounts in some swing states.

It seems investors are somewhat satisfied with how things have gone and only view Trump’s challenges as a delay to Biden eventually being declared the victor. It’s looking good for the former vice president and despite a tumultuous day yesterday, markets are clearly quite content with Biden in the White House and Republicans holding the majority in the Senate. We may not get as large a stimulus but tax hikes look much less likely now.

BoE adds QE but not prepared to join negative rate club just yet

The Bank of England joined the Reserve Bank of Australia earlier this week in announcing further easing this morning. The central bank increased its asset purchase program by £150 billion – surpassing expectations of a £100 billion increase – which should see it through to the end of next year, although it stands ready to do more if necessary.

Despite going over and above on purchases, sterling only very briefly came under pressure and quickly did a 180, rallying strongly against the dollar and euro and, at the time of writing, it’s holding onto these gains. It seems a strange reaction, given the downgrades to growth this year (-11% from -9.5% in August) and next (7.25% from 9%), although 2022 is expected to be better (6.25% from 3.5%). Unemployment is expected to be slightly better this year at 6.25% from 7.5% in August, due to the extended furlough scheme, which we should hear more about later from Chancellor Rishi Sunak.

The reaction in sterling is strange though and may suggest that the market had higher hopes for negative interest rates which seems odd given the recent commentary from the central bank. The MPC did appear to indicate that further easing would come from more bond purchases in the future, potentially denting any hopes that the BoE will consider adopting negative rates any time soon, despite putting in the work behind the scenes to ensure it is possible should it be needed.

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