Good morning,

The main news over the weekend was that Mercedes won their 7th consecutive Formula One Constructors championship, breaking Ferrari’s Schumacher era record of six titles in a row. Almost as inevitable as Mercedes taking the win was news from Downing Street that we’re heading into a second lockdown. Following a leak in government, Boris was forced to bring forward his announcement which ended up taking a Prime Time TV slot by the time he’d done the necessary deals to fund the lockdown and got his wording right. So from Thursday we’ll be back to how we were in the spring, although schools will stay open as will building sites and factories for what will at least be one month, but probably longer.

To accompany the lockdown we’ll see an extension to the furlough scheme – again, for at least a month, but probably longer. The news is clearly welcome, but there’s also huge frustration that had this been announced two weeks ago then there wouldn’t have been so many people made redundant on Friday, which was the official end of the original furlough scheme. The delay in the lockdown will be pored over in the Commons, not least by Sir Kier Starmer who is going to love to say ‘I told you so’, but the government is insisting it followed ‘the data’ , ‘the evidence’ and ‘the facts’ – which is a subtle but significant departure from following ‘the science’ which was calling for this to happen weeks ago.

The Bank of England is likely to step up its asset purchases by a further £100bn to be able to buy even more debt than it was originally planning to. The bank is meeting this Thursday and  we’ll get a pre-emptive announcement of more money being printed and possibly allude to negative interest rates being their next step. The central bank has around £750bn of government debt on its balance sheet and the more it prints, the less effective it becomes, as such a more radical step might be required. A double dip recession is almost a foregone conclusion at this point and government borrowing is going to at least hit the high end of the ONS predictions, if not exceed it.

A double dip, negative rates and a hard Brexit would spell a structural re-think of Sterling’s place and value in the world. At the moment we can clearly see all three, but news over the weekend is that we are close to a breakthrough on fishing in the negotiations which could then make it a quick path to a deal. If Brexit gets sorted then we only have to worry about the other two, but at least there as far as the Pound is concerned, we’re in the same boat as everybody else and, to continue the analogy, it comes down to who can bail out the recessionary water the quickest.

The lockdown is not yet a done deal, as it will need to be voted upon in the Commons. Labour will fall into line behind their leader, who has said he will back it and the only dissent is likely to come from the Tory benches, some of whose arguments can be found in this Evening Standard article. It’s likely the vote will be on Wednesday.

We should know the outcome of that vote before we know the outcome of the other big vote that takes place this week: The US election. So far more than 90 million postal ballots have been received, which is around 65% of the total amount of votes that were cast in 2016. The time taken to process this number means it’s unlikely that an accurate outcome can be delivered before the end of Tuesday night. It’s being reported that trump has told confidants that he’ll declare himself the winner early if it looks like he’s in front at that point, even if they’ve not got a clear picture. Trump has denied this, but he has confirmed that the moment the election is over he’ll be “going in with our lawyers”. At the moment the Supreme Court is allowing votes to be counted after the 3rd November in some states only if they’re received by the 3rd, in others if they’re received between 3rd and the 9th, but postmarked the 3rd.  Polls are still showing a Biden win, but they are narrowing and even with ‘margin for error’ built into the numbers, it may be that Trump can get it done.

In the markets: The Dollar is the main benefactor of falling equity markets, having strengthened across the board. Oil has seen a pretty sharp sell-off on the Europe wide lockdown news, as consumption is likely to fall and aviation is going to get cut off at the knees again. Risk-off positioning is something that we normally see ahead of an election, so it’s not all a Covid story. What this means though is that we could see some larger upside movements if it does look like the White House and the Senate are going to fall to Biden – but as we’ve said, that is looking like less of a slam dunk than it was a week ago and Trump’s whirlwind campaign schedule is probably the only thing in the US travelling faster than Covid – though the argument could be made that the former accelerates the latter.

We’ll be pulling an all-nighter for the election and will be contactable on our usual office numbers throughout. It could well be a rollercoaster of a night for markets, so please do speak to us today and tomorrow if you want to position yourself ahead of it.

Have a great week


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