adplus-dvertising
Connect with us

Politics

Politics, economics and a pandemic: Equity markets under pressure – Investors' Corner BNP Paribas

Published

 on


Early trading in September saw heavy profit-taking, the US S&P 500 index having just set a record high when it closed on 2 September, the same day it had marked a rise of nearly 11% since the start of the year.

Labouring under substantial profit-taking and certain technicalities, US tech stocks were hit particularly hard, with the Nasdaq composite index correcting by 10% between 2 and 8 September.

These swings brought with them a rise in implied volatility: The VIX index, calculated on S&P 500 options, rose in a few days from 22 to 34, its highest since the end of June.

However, there was only limited contagion to other major stock markets and other risky assets and so the ‘risk off’ phase failed to really take hold.

  • Firstly, volatility eased and eurozone indices held up well for most of the month; in Tokyo, the stock market even ended slightly higher.
  • Secondly, US equities rose at the end of the period, driven in particular by hopes of an agreement in Congress on new fiscal measures.

Over the month, global equities fell by 3.4% (MSCI AC World index in US dollar terms). Coming after five consecutive monthly gains, the drop reflected concerns about the resurgence of COVID-19. The rise in the number of infected cases and hospitalisation led many countries to beef up social distancing measures: There was a re-imposed lockdown in Israel, local lockdowns in Spain, restrictions on public gatherings and shorter bar and restaurant opening hours in France, the UK and Germany in particular.

The threat of a second wave and such responses reminded investors of the real uncertainties hanging over the global economy – something they had chosen to ignore mostly during the summer. Disappointing activity indicators, particularly in the eurozone, fuelled investor concerns by highlighting signs that the recovery was running out of steam after the mechanical (and rapid) catch-up since May.

Against this backdrop, the renewed commitments from the main central banks to maintain their highly accommodative monetary policies for a long time, or even to take additional measures if needed, failed to fully reassure equity investors.

Recent economic data has been encouraging. Activity is returning to pre-pandemic levels in many sectors of the Chinese economy and the pick-up in demand on Asian exporters is favourable. Moreover, the epidemic appears to be under better control than in major Western countries and other emerging markets. Emerging Asia’s better resilience helped the MSCI Emerging Markets index (-1.8% in USD terms) outperform developed markets.

US equities underperformed other major markets. The S&P 500 lost 3.9% and the Nasdaq composite 5.2%. This decline, however, still leaves the Nasdaq up by 24.5% year-to-date (+4.1% for the S&P 500).

European stock markets ended down: -2.4% for the EuroSTOXX 50, which has fallen by 14.7% so far in 2020, reflecting in particular by the weakness in financial stocks.

In Tokyo, the Topix ended up slightly (+0.5%), supported by the Bank of Japan’s asset purchases and by the recovery in demand in Asia. The Japanese government’s change of leadership, which was quick and smooth, was seen as ensuring continuity in economic policy.

At the global level, cyclical sectors, including some subsectors of technology, outperformed the rest of the market. Energy and banks saw the biggest monthly declines.

The EUR/USD exchange rate, having peered above 1.20 on 1 September, first stabilised at around 1.18 before heading towards 1.16. Market participants had expected comments from members of the ECB Governing Council to end the rapid appreciation of the euro since late May, when the exchange rate was below 1.10.

Market moves in September were a result of concerns over eurozone growth and the drop in equities that led investors to favour the US dollar.

EUR/USD finished the month at 1.1743, down by 1.7% compared to the end of August. Even so, the euro appreciated over the third quarter.

Exhibit 1: Changes in the EUR/USD exchange rate from January 2018 to September 2020

After the ECB’s policy meeting on 10 September, there were no changes in key rates, asset purchase programmes or forward guidance. While this had largely been expected, observers were disappointed on several points, and were left with the impression that the ECB’s stance was a little less dovish than expected.

This feeling was compounded by various rumours that some council members would have liked the upward revision of the GDP forecast to have been better highlighted. An 8% drop in eurozone GDP is now expected for 2020, while in June the ECB had forecast a drop of 8.7%. This was mainly due to a somewhat smaller decline in Q2.

The ECB’s reaction to the euro’s gains seemed low key. As is customary, the ECB has talked about the effects on inflation of a strong currency. However, its statements have remained muted and suggest the council is not too concerned about the euro hovering at around USD 1.18. Yet only the day after the meeting, several comments on this topic suggested dissensions among council members.

Against this background, expectations remain high for an announcement in December of a further increase in the asset purchase enveloppes, or a reallocation between programmes – and this despite some comments giving the impression that the envelope of the PEPP (Pandemic emergency purchase programme) may not be fully used.

The investor optimism that prevailed in July and August weakened in September. The difficulties encountered at the start of the month by US tech stocks spread to other risk assets, although without markets reaching for the panic button.

As signs of a second wave of COVID-19 mount, investors seem to have suddenly become aware of the fragility of the global economy. After the slump in activity in the spring and the rapid rebound from May onwards, momentum has recently flagged.

In addition, as the US election approaches and Brexit negotiations enter the final straight, political factors will come more to the fore in the coming weeks.

And among these health, economic and political uncertainties, there are likely to be delays in the adoption of new fiscal support measures in the US and Europe. Equity movements could be erratic in the short term even if a still rather cautious investor positioning is likely to limit the downside.

In the medium term, proactive economic policies should ensure a favourable environment. The message from central banks is clear: The monetary policies put in place will allow long-term rates to remain low for a long time.

Such an environment is supportive of equities and risk assets generally. In addition, advances in medical research should become more tangible over coming months and help boost economic agents’ confidence. This remains crucial for a sustainable recovery that can spread across all sectors.

Beyond possible short-term headwinds, we remain cautiously optimistic and, depending on the signals sent by our proprietary market ‘temperature’ indicators, we may look at bearish developments as opportunities to strengthen our equity position.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Let’s block ads! (Why?)


728x90x4
Source link

Politics

Political parties cool to idea of new federal regulations for nomination contests

Published

 on

 

OTTAWA – Several federal political parties are expressing reservations about the prospect of fresh regulations to prevent foreign meddlers from tainting their candidate nomination processes.

Elections Canada has suggested possible changes to safeguard nominations, including barring non-citizens from helping choose candidates, requiring parties to publish contest rules and explicitly outlawing behaviour such as voting more than once.

However, representatives of the Bloc Québécois, Green Party and NDP have told a federal commission of inquiry into foreign interference that such changes may be unwelcome, difficult to implement or counterproductive.

The Canada Elections Act currently provides for limited regulation of federal nomination races and contestants.

For instance, only contestants who accept $1,000 in contributions or incur $1,000 in expenses have to file a financial return. In addition, the act does not include specific obligations concerning candidacy, voting, counting or results reporting other than the identity of the successful nominee.

A report released in June by the National Security and Intelligence Committee of Parliamentarians expressed concern about how easily foreign actors can take advantage of loopholes and vulnerabilities to support preferred candidates.

Lucy Watson, national director of the NDP, told the inquiry Thursday she had concerns about the way in which new legislation would interact with the internal decision-making of the party.

“We are very proud of the fact that our members play such a significant role in shaping the internal policies and procedures and infrastructure of the party, and I would not want to see that lost,” she said.

“There are guidelines, there are best practices that we would welcome, but if we were to talk about legal requirements and legislation, that’s something I would have to take away and put further thought into, and have discussions with folks who are integral to the party’s governance.”

In an August interview with the commission of inquiry, Bloc Québécois executive director Mathieu Desquilbet said the party would be opposed to any external body monitoring nomination and leadership contest rules.

A summary tabled Thursday says Desquilbet expressed doubts about the appropriateness of requiring nomination candidates to file a full financial report with Elections Canada, saying the agency’s existing regulatory framework and the Bloc’s internal rules on the matter are sufficient.

Green Party representatives Jon Irwin and Robin Marty told the inquiry in an August interview it would not be realistic for an external body, like Elections Canada, to administer nomination or leadership contests as the resources required would exceed the federal agency’s capacity.

A summary of the interview says Irwin and Marty “also did not believe that rules violations could effectively be investigated by an external body like the Office of the Commissioner of Canada Elections.”

“The types of complaints that get raised during nomination contests can be highly personal, politically driven, and could overwhelm an external body.”

Marty, national campaign director for the party, told the inquiry Thursday that more reporting requirements would also place an administrative burden on volunteers and riding workers.

In addition, he said that disclosing the vote tally of a nomination contest could actually help foreign meddlers by flagging the precise number of ballots needed for a candidate to be chosen.

Irwin, interim executive director of the Greens, said the ideal tactic for a foreign country would be working to get someone in a “position of power” within a Canadian political party.

He said “the bad guys are always a step ahead” when it comes to meddling in the Canadian political process.

In May, David Vigneault, director of the Canadian Security Intelligence Service at the time, said it was very clear from the design of popular social media app TikTok that data gleaned from its users is available to the Chinese government.

A December 2022 CSIS memo tabled at the inquiry Thursday said TikTok “has the potential to be exploited” by Beijing to “bolster its influence and power overseas, including in Canada.”

Asked about the app, Marty told the inquiry the Greens would benefit from more “direction and guidance,” given the party’s lack of resources to address such things.

Representatives of the Liberal and Conservative parties are slated to appear at the inquiry Friday, while chief electoral officer Stéphane Perrault is to testify at a later date.

After her party representatives appeared Thursday, Green Leader Elizabeth May told reporters it was important for all party leaders to work together to come up with acceptable rules.

This report by The Canadian Press was first published Sept. 19, 2024.

Source link

Continue Reading

Politics

New Brunswick election candidate profile: Green Party Leader David Coon

Published

 on

 

FREDERICTON – A look at David Coon, leader of the Green Party of New Brunswick:

Born: Oct. 28, 1956.

Early years: Born in Toronto and raised in Montreal, he spent about three decades as an environmental advocate.

Education: A trained biologist, he graduated with a bachelor of science from McGill University in Montreal in 1978.

Family: He and his wife Janice Harvey have two daughters, Caroline and Laura.

Before politics: Worked as an environmental educator, organizer, activist and manager for 33 years, mainly with the Conservation Council of New Brunswick.

Politics: Joined the Green Party of Canada in May 2006 and was elected leader of the New Brunswick Green Party in September 2012. Won a seat in the legislature in 2014 — a first for the province’s Greens.

Quote: “It was despicable. He’s clearly decided to take the low road in this campaign, to adopt some Trump-lite fearmongering.” — David Coon on Sept. 12, 2024, reacting to Blaine Higgs’s claim that the federal government had decided to send 4,600 asylum seekers to New Brunswick.

This report by The Canadian Press was first published Sept. 19, 2024.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Politics

New Brunswick election profile: Progressive Conservative Leader Blaine Higgs

Published

 on

 

FREDERICTON – A look at Blaine Higgs, leader of the Progressive Conservative Party of New Brunswick.

Born: March 1, 1954.

Early years: The son of a customs officer, he grew up in Forest City, N.B., near the Canada-U.S. border.

Education: Graduated from the University of New Brunswick with a degree in mechanical engineering in 1977.

Family: Married his high-school sweetheart, Marcia, and settled in Saint John, N.B., where they had four daughters: Lindsey, Laura, Sarah and Rachel.

Before politics: Hired by Irving Oil a week after he graduated from university and was eventually promoted to director of distribution. Worked for 33 years at the company.

Politics: Elected to the legislature in 2010 and later served as finance minister under former Progressive Conservative Premier David Alward. Elected Tory leader in 2016 and has been premier since 2018.

Quote: “I’ve always felt parents should play the main role in raising children. No one is denying gender diversity is real. But we need to figure out how to manage it.” — Blaine Higgs in a year-end interview in 2023, explaining changes to school policies about gender identity.

This report by The Canadian Press was first published Sept. 19, 2024.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending