Trump testing Covid-19 positive a temporary setback for markets: Analysts

US President Donald Trump testing positive for Covid-19 triggered a fall across global equity markets on Friday, which analysts feel is just a knee-jerk reaction to the development. While they rule out a possible delay in the US presidential polls due to the development, the health report of POTUS and the possibility of another stimulus package by the US Federal Reserve (US Fed) will be keenly tracked by the markets, they say.

"The news has definitely come as a setback for the Trump camp from a political standpoint. I don’t think the US elections will get postponed due to this development. POTUS will be quarantined for 14 days and will still have a fortnight to campaign. He can still make up for the lost ground and even get sympathy vote given the Covid-19 development. For the markets, this is just a sentiment dampener that will keep them choppy – though a meaningful correction just due to this singular event is ruled out,” says U R Bhat, managing director at Dalton Capital.

US stock futures and Asian shares lost ground Friday after President Donald Trump said he and first lady Melania Trump had tested positive for Covid-19. The future contracts for both the S&P 500 and the Dow industrials lost 1.9 per cent. READ ABOUT IT HERE

Vaibhav Sanghavi, co-chief executive officer at Avendus Capital Public Markets Alternate Strategies, too, echoes a similar view. “Trump testing Covid-19 positive is a temporary setback for the markets. While most global indices have corrected, I see this as just a knee-jerk reaction to the development,” he says.

Meanwhile, according to a Gallup survey released Thursday, Trump saw his highest approval rating (46 per cent) since May. The data, which was gathered in the two weeks ahead of the first debate between POTUS and Democratic candidate Joe Biden, reflected an uptick from the 42 per cent Trump received earlier in September.

"Market participants should not assume a decisive victory for Biden, even as he leads Trump in the national polls. Remember that Hillary Clinton led Trump in the 2016 polls for almost the entire 2016 election year but still lost to him in America’s idiosyncratic electoral college voting system,” says David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco.

Going ahead, Chao expects emerging market (EM), Asian equities to strengthen from current levels into the year-end as the US election overhang is removed and investors refocus on fundamentals, such as an improving economy and likely Covid-19 vaccine in 2021.
 

As regards the monetary policy, most analysts expect the US fed to remain accommodative going ahead in order to prop up the economy and help stem the fallout of the Covid-19 crisis, irrespective of who wins the US presidential election.

"Over the next two years, regardless of who wins, we think that the monetary policy stance will remain accommodative and the monetisation of public debt will continue. We are also unlikely to see a reversal of the stance on China. More importantly, we believe that the US dollar's bearish trend (steeper under a Biden victory than Trump) and the gradual increase in US bond yields will continue,” wrote Kokou Agbo Bloua, global head of economics, cross-asset and quant research at Societe Generale in a September 22 report.