Weekly multi-asset desk views

Summary

• Joe Biden has won a majority of votes in the US presidential election
• The UK enters its second lockdown, and the Bank of England extends its bond purchasing programme
• European services PMIs slide, whilst the increase in US non-farm payrolls exceeds market expectations
• Outlook: the US election result, Covid-19 developments and Brexit negotiations are likely to take centre stage next week
• The portfolio returned +2.72% this week, taking the year-to-date returns to -3.75%

Strategy review

The portfolio returned +2.72% this week, taking the year-to-date returns to -3.75%. Our equity exposures delivered the greatest returns and the remaining constituents were all positive. Our fixed income exposures helped returns, in particular our corporate bond exposures. Total return strategies and our real asset exposures were smaller positive contributors over the week.

Figure 1: Performance against benchmark

Source: Insight. Gross returns. ¹Data as at 6 November 2020. Insight Broad Opportunities Fund (share class S GBP, inception 29 February 2012). ² Data as at 31 October 2020. Insight broad opportunities strategy (inception 31 Dec 2004). The long-term track record of the Insight broad opportunities strategy has a base currency of USD. This performance has been adjusted by interest rate differentials to derive a GBP proxy. No currency adjustments have been made to the underlying investments.

Market and economic review

At the time of writing (Friday afternoon), Joe Biden looks likely to win the US presidential race, however it remains a closely fought contest. With a few remaining states to be decided, we will focus only what we do know at this point in time, which is that polling agencies, once again, seemed to significantly underestimate Donald Trump’s chance of success. As the results started to roll in, Trump swept Florida, which he knew he must if he were to stand any chance of winning overall. As more states declared, it was looking more positive for Trump’s chances, which saw him move to becoming a favourite in betting odds. As the counts went on however, the market was aware that mail-in votes would likely have a democratic-tilt, and the contest was certainly far from over. As it stands, Biden has flipped the states of Michigan, Wisconsin (and likely Arizona), whilst also taking a small lead in both Pennsylvania and Georgia, all very important swing states. It is likely that by the time you read this, the final result will be declared (ignoring the probable legal action and recount demands that could follow).

On the Senate front, the Democrats were again expected to win a majority, however this was deemed less likely than Biden winning the presidency overall. As it currently stands, the Senate is tied 48-48. We learnt that both Georgia seats will go to a runoff in January, which gives the Democrats an outside shot at getting a slim control of the Senate if both seats are won (with the Vice President Kamala Harris, if Joe Biden wins, breaking the tie).

In terms of market reaction, after spiking at nearly 0.95%, the 10-year US Treasury yield dropped below 0.75% as it became clear that the election was much closer than had been expected. As it appeared the tide was gradually turning in Joe Biden’s favour as postal votes were counted, both equities and bonds rallied. As at the time of writing, the S&P500 is +7.3% this week alone, with the NASDAQ +8%.

If that wasn’t enough for markets to concentrate on, there was plenty of news from central banks. The Federal Reserve kept the fed funds target range at 0-0.25%, which remains unchanged since March, and decided to maintain the bond purchasing program at $120bn per month. Unsurprisingly, the Fed Chair Jerome Powell continued to call for further fiscal stimulus to help bring the economy out of the Covid-induced slump.

The Bank of England (BOE) decided to raise the level of its bond-buying programme from £745bn to £895bn. The increase is aimed at supporting the economy, particularly, in the bank’s words, consumer spending, through the winter months and in the face of a likely double-dip recession. Interest rates were left unchanged. The BOE also forecasted a contraction in GDP, as the UK entered its second lockdown on Thursday, with bars, restaurants and non-essential shops being closed once again.

This is not the only new lockdown across Europe, with various restrictions imposed across the continent as a number of European countries reported record case numbers this week, including France, Italy, Poland, Austria and Romania. The picture is no healthier in the US, which saw another record number of daily infections on Thursday at 126,210.

Finishing up, and again playing second fiddle to the flurry of election-headlines, there were some material data prints released through the week. In the US labour market on Friday the monthly change in nonfarm payrolls beat expectations, printing at 638k vs an expected 593k. In Europe, the services and final composite PMIs for a number of countries were released, where it is evident that services are now sliding, ahead of what is going to be a tough Q4 with the recently imposed lockdown measures.

Outlook