While the world waits for a conclusive outcome in the U.S. presidential election, global stock markets surged after more states announced results on Wednesday. Wall Street futures indicated that the S&P 500 could open more than 2 percent higher on Thursday, and European and Asian stocks also rose.
Former Vice President Joseph R. Biden Jr. was declared the winner in Michigan and Wisconsin on Wednesday and held slim leads in other key states. But Republicans were increasingly confident that they would maintain control of the Senate.
The Stoxx Europe 600 rose 0.9 percent on Thursday, pulled higher by technology stocks. The DAX index in Germany rose 1.3 percent and the CAC index in France gained 1 percent. Asian markets closed higher with the Hang Seng index in Hong Kong up 3.3 percent, the biggest one-day increase in four months. The Nikkei 225 in Japan climbed 1.7 percent
On Wednesday, the S&P 500 index had its best day since June, gaining 2.2 percent, as investors quickly realigned their positions on the prospect of a divided government.
Before Election Day, investors had driven up stock prices on increased expectations of a Democratic sweep of the White House and Congress that would deliver a large fiscal stimulus package to help jump start an economy reeling from the coronavirus pandemic
But Mr. Biden’s platform also includes some proposals — such tax increases on corporations, capital gains and wealthy individuals — that many on Wall Street view as negative for stocks.
And while gridlock would likely mean the eventual stimulus package was smaller than investors might have hoped for, it would also mean Mr. Biden might find it difficult to advance the parts of his policy agenda that are most worrisome to Wall Street.
“It does push away the fear of investors of this highly progressive agenda that they generally don’t support and think would be bad for the markets,” said Doug Rivelli, president of the institutional brokerage firm Abel Noser in New York.
Investors are also waiting to hear from the Federal Reserve later on Thursday as policymakers conclude their two-day meeting. Emergency support programs will expire at the end of the year but analysts are increasingly expecting that the central bank will do more to support the economy if the election outcome leads to a relatively small fiscal stimulus package.
As England entered its second national lockdown to slow the spread of the resurgent coronavirus pandemic, Britain’s central bank said it would increase monetary stimulus in the face of a renewed downturn in the economy.
The central bank, the Bank of England, also downgraded its projections for the path of the recovery, forecasting a 2 percent drop in G.D.P. in the fourth quarter compared with a previous projection of growth. Three months ago, policymakers said they expected the British economy to recover to its pre-pandemic level by the end of 2021. On Thursday, they said this wouldn’t happen until early 2022.
Policymakers voted unanimously to buy 150 billion pounds ($195 billion) more in government bonds next year, increasing the bank’s total stock to £875 billion. This was more purchases than economists had predicted.
This is the third time the Bank of England has increased bond-buying in 2020, the year its program of purchases had been designed to end. Quantitative easing, as such purchases are known, is supposed to bolster the economy by keeping interest rates low and encouraging financial institutions to invest in riskier assets than government bonds.
Beginning Thursday, restaurants, bars, hotels, nonessential shops, gyms and all other leisure facilities must close until Dec. 2. Unlike in the spring lockdown, however, schools will remain open and construction and manufacturing work will continue. The measures were announced over the weekend after Italy, France, Germany and Belgium also introduced tighter restrictions on movement, all in an effort to curb a second wave of virus infections that has filled some hospitals and caused more deaths.
In the spring, Britain shuttered businesses and much of its economy later than some of its European neighbors and in the end had a longer lockdown and one of the worst recessions in the second quarter. Some politicians and economists fear that Britain is repeating this error. Opposition lawmakers had pushed for a lockdown weeks ago but the government persisted with local restrictions instead. On Sunday, before the latest restrictions were imposed, a senior government official suggested that the proposed one-month timeline for this lockdown might have to be extended.
The British Treasury had already said it would extend until the end of December the furlough scheme that pays 80 percent of wages for employees who cannot work. The central bank said on Thursday that it expected 5.5 million people to be put on furlough, about 3 million more than are currently using it. The Treasury also increased grants to self-employed workers and businesses. The chancellor of the Exchequer, Rishi Sunak, is expected to address lawmakers in Parliament later on Thursday.
The worsening outlook for the British economy, which will also be affected by the country’s separation from the European Union at the end of the year, may renew speculation about whether the central bank will introduce negative interest rates. Last month, the Bank of England asked banks if they were operationally ready for the implementation of zero or negative rates. The bank rate was held at 0.1 percent at this month’s policy meeting.
A feeble recovery staged over the summer months when the pandemic was in a brief lull in Europe has been disrupted by the second onslaught gripping the region, European Commission forecasts said Thursday, adding that the bloc will not return to pre-pandemic economic output before 2022 at the earliest.
The autumn forecast, the latest installment of the commission’s quarterly health check of the economies of the 27 E.U. countries, showed that the second wave of Covid-19 infections, which have forced a growing number of countries to go back into full or partial lockdowns in recent weeks, will weaken the economic recovery of the region in 2021. The forecast said that the bloc’s economies will shrink on average by 7.4 percent this year; the core of the region, the euro area of 18 nations that share the common currency, will see a 7.8 percent contraction, the commission said.
“This forecast comes as a second wave of the pandemic is unleashing yet more uncertainty and dashing our hopes for a quick rebound,” said Valdis Dombrovskis, the European Commission executive vice president.
The Spanish economy will be worst hit, the forecasts said, set to shrink by 12.4 percent, followed by Italy, which is predicted to lose 9.9 percent of its economic output this year. France, the bloc’s second-largest economy, will contract by 9.4 percent, whereas the leader, Germany, will see a more moderate 5.4-percent contraction.
Prognosticating in this environment is treacherous, the report authors warned: “Uncertainties and risks surrounding the Autumn 2020 Economic Forecast remain exceptionally large.”
A worsening pandemic and longer-term, deeper scars to the economy after this crisis, such as an avalanche of bankruptcies and high unemployment, could also set the recovery back more than is currently foreseen, the report warned. The specter of double-digit unemployment is returning to the European south, especially set to hurt Greece (with a jobless rate of 18 percent) and Spain (16.7 percent), the forecast showed.
But perhaps one of the more lasting impacts of the financial crisis unleashed by the pandemic will be spiraling debt burdens across the board in E.U. countries.
In the euro area, aggregate government debt will jump to more than 100 percent of economic output in 2022, from 85.9 percent. The European Union has issued joint bonds in recent weeks, at a scale never before attempted, to begin funding some of its joint social and economic support measures for its members. And the European Central Bank has been providing ample liquidity to members that need funding to support prolonged furlough plans and other economic recovery measures.
A landmark stimulus package, a 750 billion euro, or $883 billion, set of grants and loans to help lift economies, known as NextGenerationEU, is stuck in negotiations and will not come online until next year.
New government data on Thursday is expected to show a slight dip in the number of workers filing new claims for state unemployment benefits even as coronavirus cases continue to surge in the Midwest, prompting a fresh round of virus shutdowns.
For several weeks, new claims for state jobless benefits have tallied roughly 800,000 a week, significantly lower than after the pandemic first struck but still extraordinarily high by historical standards.
“The trajectory of new claims continues to slowly stair-step down, but remains in the territory that would be regarded as historically elevated,” said Mark Hamrick, senior economic analyst for Bankrate.com. “More than a half year after the pandemic-caused downturn began, we remain in a very stressful time for the U.S. economy.”
That economic stress is compounded by the political impasse over a new federal aid package, which the election this week did little to resolve.
“The prospects of a fiscal stimulus over the next few weeks are still quite uncertain, and the possibility of even a stronger economy under a Democratic sweep is now highly unlikely,” said Gregory Daco, chief U.S. economist for Oxford Economics. “As a result, we are that much more concerned about the pace of growth heading into 2021 and the effect on the labor market.”
The Federal Reserve is likely to adopt a wait-and-see approach at the conclusion of its two-day meeting on Thursday, Jeanna Smialek reports, as policymakers try to avoid inserting the Fed into the election story line.
The tone the Fed chair, Jerome H. Powell strikes during his virtual postmeeting remarks, which will start around 2:30 p.m., could be the most important thing to come from the November gathering. He is likely to continue to pledge a very long period of rock-bottom interest rates. And he may sound at least somewhat worried, given the economic backdrop.
Here’s what to look out for at this week’s meeting.
Bond buying is in the cross hairs.
Many economists believe Fed officials could extend the duration of their bond portfolio — meaning that they will start buying longer-dated bonds in a bid to push down rates on such securities. The point is to make many types of credit cheaper, which could help support borrowing and demand. Minutes from the Fed’s September meeting suggested that officials might discuss and refine communication around their balance sheet plans at coming meetings, but few economists expect major moves this soon.
Emergency programs face an uncertain future.
Programs backed by funding from pandemic relief legislation are at a crossroads. They are set to expire at the end of December, and Mr. Powell and the Treasury secretary, Steven Mnuchin, must decide whether to extend them into 2021.
There are big questions around what it would mean if the whole suite of programs were allowed to sunset. On one hand, markets are operating smoothly now, and the Fed has demonstrated a willingness to step in that may keep them calm even in the absence of actual programs. Yet eliminating the formal backstop just as the nation plunges into renewed stress, with election uncertainty and virus cases on the rise, could undermine confidence.
Voters in Illinois rejected a proposal to increase tax rates on high earners, the centerpiece of Gov. J.B. Pritzker’s plans to address the state’s severe money problems. The ballot measure didn’t come close to passing: As of Wednesday morning, 55 percent of voters opposed the measure. The ballot measure would have instituted a graduated income tax to raise billions of new revenue.
Gap on Wednesday tweeted an image of a half-red, half-blue hoodie bearing the brand’s logo, along with the caption, “The one thing we know, is that together, we can move forward.” Clicking the image showed the sweatshirt being zipped up. The post, which was subsequently deleted, quickly went viral and was met with widespread mockery and criticism. “Read the room,” several users wrote. “Really? A red & blue hoodie is the healing ointment America needs?” one user posted.
Proposition 21, a California initiative that would have given local authorities more leeway in setting rent control policies, was decisively defeated on Tuesday. It was the second time in two years that California voters rejected expanding rent control even as the state contends with high housing costs and homelessness. With nearly three-quarters of the votes counted, barely 40 percent favored the initiative.