Markets Brace for Lockdowns and Potential Blue Wave

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

European and US markets are bracing on Wednesday as several countries impose stricter lockdown measures to curtail a spike in COVID-19 cases and the first of two key Georgia Senate races is won by the Democratic Party.

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%.

Following a brief relaxation of COVID-19 restrictions during the holidays, the UK and European nations are beginning to impose tougher measures. A third nationwide lockdown has been declared in the UK, along with new economic stimulus for businesses in affected sectors, with France and Germany now in their second lockdowns as a highly infectious new strain of COVID-19 spreads internationally.

Markets are also focused on the outcome of the two runoff US Senate votes in Georgia, which will determine whether the Democratic or Republican parties gain a majority. A Democrat win would greatly empower the incoming Biden administration, affecting the reach of the new president’s policies during his first two years in office and impacting 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. Democratic challenger Jon Ossoff also holds a lead over Republican David Perdue with 98% of votes counted, according to the AP.

“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,” said Deutsche Bank analysts in a note. “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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