The global economy is facing many challenges that make it uncertain to determine what the future holds. In that context, an elusive US stimulus and rising cases of COVID-19 made Wall Street experience its worst session in weeks on October 26. The persistent pandemic may result in new business-suffocating containment measures and worse prospects of economic recovery.
Despite many months of exhaustive talks back and forth, it seems that the chances are slim for the Democrats and Republicans to come up with a rescue plan to assist the cash-strapped Americans before the November 3 Presidential election. Both sides are blaming the other for the stand-off.
Analysts and commentators say that investors had already given up hope of any agreement and are now hoping for a Joe Biden win and a Democratic sweep of Congress. If that happens, it will open up the way for a huge spending package in the new year. Any other outcome will mean further deadlock. Gregori Volokhine of Meeschaert Financial Services said:
“There will probably be gridlock if Biden wins but the Democrats don’t take the Senate.”
Adding to that negative sentiment was an increase in coronavirus cases in Europe and the United States, with the WHO on October 25 reporting a third consecutive day of record new infections worldwide.
A senior market analyst at Oanda trading group, Craig Erlam, commented:
“Rising Covid cases, no US stimulus, and an election next week isn’t exactly the recipe for a strong week for equity markets.”
What Is Affecting The Markets
The Dow closed 2.3% lower which is the index’s worst session since early last month. Republicans and Democrats in Washington have tried for several months to agree on another major stimulus package to enable the economy to recover from the pandemic downturn.
But so far, there has been no agreement with Treasury Secretary Steven Mnuchin commenting last week that “significant differences” remain with Democrats. On Monday, Mnuchin spoke with House Speaker Nancy Pelosi for about an hour. Pelosi’s spokesman said that she is optimistic that an agreement could be reached before next week’s election.
In the meantime, many other countries including Germany, Britain, and France reimposed tough restrictions to curb the spread of the second wave of COVID-19. Analysts at Briefing.com said:
“Naturally, growth concerns are at the root of the negative bias since the resurgence of the virus threatens more lockdowns and the lack of a stimulus deal threatens to exclude many struggling businesses and households from the economy.”
The pandemic has claimed over 1.1 million lives and infected at least 42 million individuals around the world. In Europe, Frankfurt’s DAX 30 tumbled 3.7% weighed down heavily by a 22% drop in the share price of SAP. The German software giant on October 25 downgraded its outlook for the year. It said that a resurgence in the Coronavirus cases might weigh on the demand from ‘hard hit’ customers.
London ended the trading session 1.2% lower and Paris lost 1.9%. Also, the oil prices lost 3%. David Madden said at CMC Markets UK:
“The oil market is sensitive to the perceptions about global demand, and the sharp rise in Covid-19 cases in Europe and the US has spooked traders as further lockdowns will reduce consumption.”
Traders are also keeping a keen eye on a major policy-setting meeting of China’s Communist Party later this week. The meeting is expected to set the way for the world’s second-largest economy for the coming several years to operate.