Macro Themes to Consider for the End of 2020


The last quarter of the year started with a bang. Last Friday, the President of the United States (POTUS) announced that, together with the First Lady, they tested positive for the COVID-19 virus. The news created chaos on financial markets, but by the end of the trading day, things have calmed down a bit.

COVID-19 stole the show in 2020. Events that usually influenced macroeconomics came as secondary in importance since the pandemic reached the Western World. As the world still learns how to cope with the virus, some major themes remain in place for the rest of the trading year.

Macro Themes to Consider for the End of 2020

The U.S. Presidential Elections

The U.S. elections are on everybody’s lips and a major driver in the market’s volatility moving forward. No less than three debates between the two candidates are scheduled, one already taking place last week. However, the recent announcement of the President’s infection puts everything in question, and no one knows what the next days will bring.

Can Donald Trump campaign if he must quarantine for two weeks? What is the chance that he will drop out of the race? Can the election be postponed if his health deteriorates?

So far, the market appears to price in a steady recovery from Trump. However, any changes in the President’s health will likely lead to a risk-off move.

Four years ago, when Trump was elected, the stock market rallied significantly. This year we may see another rally, but this time the market attributes the possible rally to a Biden victory.

Large Fiscal Stimulus If Biden Wins the White House

If Biden wins the elections and the Democrats also win control over the Congress, the market’s expectations are for a large fiscal stimulus package to be announced. If that is the case, the stock market will likely extend its rally to the detriment of the USD.

ECB to Expand the QE Program

Last week the Eurozone core inflation dropped close to the zero level, putting pressure on the ECB to expand the QE program. The expectations are now that the ECB will increase the program by another EUR500 billion in December, which should weigh on the EUR pairs in the months ahead.

Brexit to Dominate the GBP Moves

Brexit negotiations continue to influence the way the GBP pairs move. As we have seen last week, the European Commission started the infringement procedures against the United Kingdom on the back of the latter, breaking the Withdrawal Agreement. If there is no deal as we get closer to the end of the year, expect the GBP pairs to have a bearish reaction as 2020 end nears.

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