Markets Brace For Lockdowns And Potential Blue Wave

Both European and US markets are prepping up on Wednesday, as several countries impose stricter restrictions and measures to curb the spread of COVID-19 cases and the Democratic Party wins the first of two key Georgia Senate seats.

London’s FTSE 100 gained 0.8% at the open, while France’s CAC 40 gained 0.7% and Germany’s DAX gained 0.4%.

After we saw a relaxation of COVID-19 restrictions during the holidays, the UK and European nations are now returning to tougher measures. The UK has declared a third nationwide lockdown, along with new economic stimulus for businesses in affected sectors, while France and Germany has now entered their second phase of lockdowns as a new and more infectious strain of COVID-19 spreads internationally.

While European investors prepare for stricter COVID-19 measures, the US anticipates a Democratic Senate majority.

Markets also have their eyes out for the outcome of the two runoff US Senate votes in Georgia, which will be the decider of which party gains the majority and runs the senate. A Democrat win would mean that the incoming Biden administration is empowered to pass and implement policies faster. This result will set the stage for the first two years of the new president and also affect the size of the next COVID-19 stimulus bill.

US networks and the Associated Press have called the first of the Georgia races for Democratic candidate Raphael Warnock, likely unseating Republican Kelly Loeffler. Voting trends also show Democratic challenger Jon Ossoff holding a lead over Republican David Perdue, with 98% of votes already counted.

In a note published by Deutsche Bank analysts, “our US economists have indicated that a Democratic Senate would likely lead to another large fiscal stimulus package, possibly including some priorities of the new Administration such as infrastructure. They see that as a material upside to their GDP forecast, which they currently see rising 4.3% Q4/Q4 in 2021.” Nasdaq futures were down 1.7% on Wednesday morning, while the S&P fell 0.2% and the Dow Jones gained 0.4%.

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