Good morning,

Lockdowns in France and Germany sent markets lower yesterday and also had a lot of people placing bets as to when the UK government will be doing another U-turn and taking us from a regional approach to a national closure. The most extreme regional measures so far are in the North of the country, but London has an R number of 2.86 and climbing. The French and German lockdowns aren’t quite as tough as they were in the spring and look quite a bit like a tier three from the UK. The news sent the major stock indexes of both countries down by around 4% yesterday, whilst the remaining ‘freedoms’ in the UK meant we only saw 2.5% come off the value of the FTSE100.

The economic costs of another lockdown is going to be front and centre of many a European leader and the continuation of employment schemes as well as vastly reduced tax receipts is going to mean another look in the direction of the ECB. During the spring we had the concern that the German Constitutional Court ruling might hamper further efforts of the ECB to provide the stimulus that was needed then, but the numbers needed for the second wave could be just as significant as the first. This is going to be another test of the Eurozone and the ECB’s resolve to be able to come together and fund a solution that sort of works for everyone. Last time they passed the test and, on a relative basis, look to be doing reasonably well. A repeat of this process probably starts today, with Christine Lagarde and her team at the central bank hopefully talking up their available firepower and coordinated measures. It is probably only words at this point in time and it’s likely that we won’t see tweaking of any QE policies until the end of the year. We’ll also be listening for any hints at policy shifts that involve looking at the strength of the currency. The Euro has appreciated around 10% since the start of the year and this hurts an export driven economy.

For a dose of optimism we need to turn to The Times, who are reporting that the government is optimistic a vaccine being developed by Pfizer and backed by the German government could be ready for distribution before Christmas. The final results of the trial will be known in the next few weeks and the UK has bought enough for 20 million people. The Oxford vaccine may not have the results required to determine its safety and efficacy before the end of the year, so it’s good to have options.

In the US election race, the press are already starting to talk about life under a Joe Biden presidency, which feels a lot like counting your chickens. However, this does throw up a lot of questions over exactly what Biden’s recovery and growth plans will be and also whether he’ll be able to enact them easily enough, or if he’s going to have to do a Donald and sign executive order after executive order. His spending plans are massive, with expectations that medium term financing for infrastructure, healthcare and education reforms will cost more than $3trillion dollars over his term, this would be on top of a likely fiscal bailout that we could see anytime between now and him taking office. The concern that people have is that Republicans could all of a sudden become fiscally prudent, which they’ve forgotten to be over the last four years of the Trump administration.  This FT article is a fantastically detailed long read about what we could expect to see if Biden wins, how he’d finance it and the challenges that he’d face, from both Republicans on one side and the more progressive individuals within his own party on the other.

The Supreme Court has dealt a bit of a blow to the Trump administration, with a ruling on postal ballots in Pennsylvania and North Carolina. The ruling is to uphold a state decision that votes postmarked November 2nd but received up to three days after the election will still be counted. This isn’t because they agree with the ruling but because they say they don’t have time to consider it fully ahead of the election as Amy Coney Barrett isn’t yet up to speed on the case. Pennsylvania has said that they’ll keep ballots received after election day separate, so if a future ruling does come from the Supreme Court they’ll have a workaround.

Have a great day

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