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Factory data lifts shares but investors remain wary of US election outcome

Shares recovered globally from one-month lows yesterday as
strengthening factory data in China and Europe offset news of new virus
lockdowns, while investors prepared for more volatility arising from the
US presidential election.

A boom in eurozone manufacturing in October helped Europe leave behind a cautious start after the UK became the latest country in the region to announce a fresh lockdown to fight a second wave of Covid-19 infections.

“Europe is facing up to a harsh winter ahead,” Deutsche Bank
strategist Jim Reid said in a note. “The question to be asked to all the
European countries is can they come out of these measures in some form
towards the end of November/early December as is hoped or will they be
extended further?”

The focus was increasingly shifting towards today’s US election, although investors prepared for the chance that it could take a few days before the result became clear.
President Donald Trump trails Democratic challenger Joe Biden in national opinion polls, but polls in swing states show a closer race.

“Given the likelihood that the outcome of the presidential election will be unclear on Wednesday, and possibly for much longer, volatility could easily pick up and it might become a severe rollercoaster ride,” UniCredit strategists said.

Analysts are concerned that an uncertain outcome could cloud the
prospects for fiscal stimulus in the world’s top economy at a time when
support is much needed. Also crucial for the size of a possible stimulus
boost will be which party wins the Senate.

The VIX volatility index, which rose to its highest in four months last week, eased half a point to 37.5.

US stock index futures rose around 1pc, indicating a clear recovery on Wall Street at the open following its steepest weekly loss since March.

Despite the potential uncertainty, JP Morgan Cazenove equity strategists were upbeat.

“Any clear result is likely to be seen as a positive, with investors then able to look forward to a fiscal stimulus down the line,” they said. “Stalemate/contested elections would lead to further risk-off trading, but we believe that if such a scenario arises, one should be using the weakness as an opportunity to add exposure on a three- to six-month horizon,” they added.

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