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Take Five: U.S. election countdown, a Chinese plenum and the ECB

10/23/2020 | 06:41am EST
U.S. Democratic presidential candidate Joe Biden looks on as he talks to reporters while leaving, following the final 2020 U.S. presidential campaign debate, at Nashville International Airport in Nashville

1/ ALMOST THERE

The last week of the 2020 U.S. presidential election race will test the durability of the Biden trade -- assets viewed as sensitive to the political fortunes of Democratic challenger Joe Biden, who has widened his lead over President Donald Trump in recent weeks.

Signs that Biden is cruising to a strong finish could benefit alternative energy, cyclical stocks and cannabis firms. The Invesco Solar ETF, for example, is up 10% this month on hopes of a potential Democratic sweep.

But a comeback in the polls by Trump could lift conventional energy companies and tech stocks, which would take an earnings hit from Biden's proposed tax hikes.

- Biden tax increase might not be so bad for big banks

- Trump-Biden clash over climate change adds to cloud over oil stocks

Trump stocks vs Biden stocks:

2/ CONCLAVE

China's Communist Party leaders meet in Beijing Oct. 26-29 to settle on the next five-year economic plan. The conclave is a closed-door affair, but it is clear that shifts are afoot.

Sources suspect China is poised to lower its growth targets. Goldman Sachs says there may not be a target at all; China has already done away with one for 2020. Commodity traders reckon trade tensions might drive plans for stockpiling, especially on materials where China lacks local supply, such as copper.      

Yet markets are priced for optimism, as investors bet that whatever China's policy settings, they are unlikely to be as accommodative as the United States'. That means the yawning U.S.-China yield gap stays wide and the yuan remains strong.   

- China's blueprint to stockpile copper expected in 5-year plan

- China's leaders to endorse lower 2021-2025 growth target at key meeting - sources

Policy differences drive yield-chasers to China:

3/ WHEN, NOT IF

The European Central Bank meets Thursday and there's one key question for markets -- will the ECB deliver more stimulus in December?

There's no imminent pressure to act since emergency stimulus was ramped up not long ago. But the case for more action is getting stronger by the day as a second wave of COVID-19 inflicts new restrictions and economic pain.

Many economists expect the ECB to ramp up quantitative easing in December when its latest forecasts are due. Preliminary October euro zone inflation data next week may also guide investors. Any signals from the ECB that the outlook has deteriorated would reinforce the case for a December stimulus package - an early Christmas gift to markets perhaps.

- POLL-Euro zone recovery at serious risk as COVID-19 cases rise

- New virus-related restrictions heighten uncertainty, ECB's Lagarde says

The ECB's QE policy: https://fingfx.thomsonreuters.com/gfx/mkt/gjnpwllebvw/ECB53OCT.PNG

4/ PAYBACK TIME

Europe's banks, whose shares have been bouncing round record lows, are on a mission to reinstate dividend payments to attract investors back.

Healthier lenders had been a reliable source of shareholder payments -- until the ECB and Bank of England put the kibosh on it. Both are due to review their bans in the coming months.

UBS, which was only forced to stagger its dividends, this week promised $2.5 billion of shareholder returns next year. Santander will ask shareholders next week to approve a 2021 cash dividend.

With HSBC, Credit Suisse, Lloyds, Natwest and BBVA to report results in coming days, investors will look closely at what kind of paybacks are on offer.

-Barclays beats profit forecasts but warns of tough times ahead

-Ermotti hands $1.5 bln buyback baton to Hamers after UBS profit blowout

Eurozone bank dividends:

5/ GUESS WHO'S BACK?

Bitcoin's back in the limelight. The original crypto had soared around 75% this year as investors bet on its purported inflation-busting qualities and reputation for swift gains.

On Wednesday, it hit its highest since July 2019 on news PayPal will open its network up to cryptocurrencies. That's a big breakthrough for bitcoin, crypto fans say -- the embrace of the payments heavyweight may herald wider use.

But it's moot whether PayPal's gambit will help long-term. Bitcoin has enjoyed similar boosts in the past, then lost steam. In eight days last year, it rallied over 50% after Facebook disclosed its still-to-be-launched Libra token - before slumping 35% in a month. Will this time be different?

- Is PayPal's crypto move a game-changer for bitcoin? Probably not

- PayPal to open up network to cryptocurrencies

Bitcoin's quiet rally:

(Reporting by Tom Westbrook in Singapore, Ira Iosebashvili and Megan Davies in New York, and Tom Wilson, Karin Strohecker and Dhara Ranasinghe in London; compiled by Dhara Ranasinghe; Larry King)


© Reuters 2020
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