Giles Coghlan, Chief Currency Analyst at HYCM, takes a look at both candidates and the significance their victories might have for investors.

This week’s US presidential election will certainly be one for the ages. American voters will be heading to the polls today to elect Joe Biden as the 46^th US President or continue with another four years of President Donald Trump. If you believe the polls, Joe Biden is edging ahead of Donald Trump. If 2016 taught us anything, however, the polls should be viewed with a grain of salt.

Investors and commentators have certainly learnt some important lessons, with many adopting a ‘wait and see’ approach. Those who hedged against a Trump victory in 2016 saw their portfolios take a big hit, though the equities rally in response to Trump’s corporate tax cuts likely helped such investors recuperate their losses over his premiership.

For now, it is important to consider what either a Trump or Biden victory could mean for the financial markets. Both candidates have touted some policies which will no doubt affect the performance of different assets. While everything is still up in the air, there are still significant observations to be made which I have detailed below.

President Joe Biden

First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious. Although not fully implementing the “Green New Deal” proposed by Democratic members of the House of Representatives, Biden has voiced his support of renewable energy and shown a willingness to gradually ween the US economy off its’ dependence on petroleum oil. At the very least, a Biden administration would be keen to re-join the Paris Climate Accords that Trump pulled the US out of in 2017.

Biden’s strong chances at securing the Presidency at present have already bolstered green energy stocks, with the First Trust Nasdaq Clean Edge Green Energy Index Fund currently trading at an all-time high. Upon a Biden victory, there could be an immediate surge in stocks related to renewable energy; including companies involved in solar, wind, and battery storage.

First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious.

Tump Back in the House

Although The Economist currently places the chances of a Trump re-election at only 5%, it’s still worth considering how the markets would react to such an eventuality.

One would anticipate an immediate short-term dollar bounce as global markets prepare for the potential heightening of the US-China trade war. As for the long term, although the Dow Jones reacted positively to Trump’s previous corporate tax cuts; more reforms would be needed to counter the negative effects of the aforementioned trade war.

There have been signs that Wall Street, no longer the political monolith it once was, has soured to Trump – indicating a lack of fear that equity markets would be negatively affected by a Biden win.

However, there is one outcome investors should be especially wary of: one in which Trump loses the electoral college but refuses to participate in a peaceful transfer of power.

A Contested Election

Trump’s consistent attempts to cast doubt on the legitimacy of this week’s election has inspired numerous American business leaders to warn the public about such a scenario, with LinkedIn co-founder Reid Hoffman recently stating: “the health of our economy and markets depends on the strength of our democracy", and that any dispute regarding the election’s outcome would "cause havoc in the business world”.

This is understandable. If 2020 has shown us anything, it’s that markets react negatively to instability and uncertainty. Uncertainty about who is the legitimate President of the United States, therefore, would imbue a fairly high amount of uncertainty into the global markets. This has essentially already been demonstrated throughout the year, with markets wavering each time Trump casts doubt concerning his eventual departure from office.

So, in summary, there are multiple ways that that different outcomes of this week’s presidential election could influence global market stability. For those nervous about their portfolios it is important not to make any rash decisions in a bid to secure short-term gains or to mitigate sudden unexpected losses.

[ymal]

While the financial markets will undoubtedly react to the events listed above, investors should always take a long-term perspective. Understanding how currencies, commodities, and financial markets are likely to be affected by a changing geopolitical environment is always paramount; however, the long-term impact is always more consequential than the immediate one. Those hoping to make effective, prudent investment decisions would do well to remember this.

High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.

HSBC has committed to making all of its operations carbon neutral by 2030 and to reaching net zero carbon emissions across its entire customer base by 2050 at the latest, the bank announced on Friday.

HSBC said that it would align its lending and financing activities with the goals outlined by the 2015 UN Paris Climate Agreement by 2050. It also said that it would assist its clients through the transition with a pledge of $750 billion to $1 trillion in financing for the initiative over the next ten years.

“As we enter a pivotal decade of change, we have a landmark opportunity to accelerate our efforts to build a healthier, more resilient and more sustainable future,” said HSBC chief executive Noel Quinn in a statement. “Our net zero ambition represents a material step up in our support for customers as we collectively work towards building a thriving low carbon economy.”

HSBC will also plans to create a $100 fund to provide loans to startups in the “clean tech” field and donate an additional $100 million towards renewable energy sources and the development of climate innovation ventures.

With the impact of global climate change growing more apparent, banks have come under increasing pressure to stop financing environmentally damaging activities such as coal power projects. Barclays made a similar commitment to carbon neutrality in March this year, and JPMorgan has recently expanded its investment in clean energy.

[ymal]

Critics have noted that HSBC fell behind its peers in responding to the threat of climate change, and slammed its new announcement for making no mention of restricting loans for the coal industry.

“We urge HSBC to commit to a global coal phase out and take immediate steps to curb its fossil fuel financing,” said Jeanne Martin, a senior campaign manager at responsible investment charity ShareAction. Martin also noted that HSBC’s pledge, while welcome, was “quickly becoming the baseline in the banking industry”.

HSBC said that it would use the Paris Agreement Capital Transition Assessment tool (PACTA) to help stakeholders track its progress towards carbon neutrality and would make regular reports on its progress.

Shares in Tesla Inc. fell by 7% on Tuesday in the wake of CEO Elon Musk’s promises of a radically cheaper new electric car battery for self-driving Tesla vehicles – which is not likely to arrive for three years.

During a presentation on Tuesday, which Musk had touted as “Battery Day”, Musk and other Tesla executives pledged to slash battery costs in half through the use of new technology and processes, delivering an “affordable” electric car. Costs would be cut so radically that a self-driving $25,000 car would be possible, but only “in about three years’ time”.

The announcement, which did not contain any mention of Tesla’s speculated development of a “million-mile” battery or a specific cost reduction target to beat petrol-based vehicles, prompted disappointment and preceded a sharply negative shift in investor sentiment.

The resulting stock slide wiped out $50 billion of value in the company, with shares closing 5.6% down and then falling a further 6.9% after hours.

"Panasonic and other suppliers were hit with Tesla planning to make its own battery,” commented Neil Wilson, senior markets analyst at Markets.com. “Nevertheless, given all the anticipation around a potential game-changer in battery technology, investors were a little underwhelmed by the news."

[ymal]

Musk had sought to downplay expectations for the event on Monday, stating in a tweet that some of the technologies to be revealed “will not reach serious high-volume production until 2022.”

Tesla shares have gained 407% since the start of 2020, drastically above the 2.6% gains seen by the S&P 500 index this year.

Oil prices fell sharply during Monday trading after a steady decline that has now continued for two weeks, owing in large part to investor fears of further lockdown measures in response to a surge in the spread of COVID-19.

Come morning trading on Tuesday, it became apparent that oil was holding its losses. Crude hit around $39 per barrel at 8:45 am in London, while Brent sat at around $41 following a 4.5% drop in price on Monday. Both losses stemmed from a broader market sell-off.

The price shock follows the reimplementation of lockdown measures in the UK in response to rising coronavirus cases, with Cabinet Office minister Michael Gove advising that Brits should work from home “if possible” to avoid spreading the virus further. Local lockdowns have also come into effect in the Madrid region since Monday, affecting nearly a million people, and the rate of infection is currently rising in France, Belgium and Lebanon.

During the height of the “first wave” in March and April, when lockdown measures were at their most severe, oil prices fell to their lowest level ever seen – West Texas Intermediate even dipping below 0% for the first time in history as demand for oil ran dry.

In addition to the growing possibility of new lockdown measures, Saturday also saw an announcement from the Libyan National Petroleum Company that it would restart its production and exportation of oil, potentially sparking a supply glut.

[ymal]

Last week, oil giant BP’s influential annual energy report said that demand for oil may never fully recover from the impact of COVID-19, and that “peak oil” may now be past. The company has already begun to transition away from fossil fuels and toward a carbon-neutral energy infrastructure.

In a statement on Monday, BP confirmed that it plans to sell its global petrochemicals business to INEOS for a total consideration of $5 billion.

In addition to meeting BP’s goal of divesting $15 billion worth of assets, the move fits new CEO Bernard Looney’s wider plan of radically overhauling BP from an oil giant into a key player in the clean energy market. Looney lauded the petrochemicals sale as “another significant step” towards reinventing BP as a company that can survive the energy transition.

“Strategically, the [petrochemical business’s] overlap with the rest of BP is limited and it would take considerable capital for us to grow these businesses,” the CEO said in a statement. “As we work to build a more focused, more integrated BP, we have other opportunities that are more aligned with our future direction.”

In a statement of his own, INEOS’s billionaire founder Sir Jim Ratcliffe said: “We are delighted to acquire these top-class businesses from BP, extending the INEOS position in global petrochemicals and providing great scope for expansion and integration with our existing business.”

BP’s petrochemical interests have been struck hard by 2020’s sharp decline in oil prices, leading to a write-down of between $13 billion and $17.5 billion in its earnings for Q2.

As part of the agreed terms of the sale, INEOS will pay a deposit of $400 million and a further $3.6 billion upon competition, with the remaining $1 billion to be paid in instalments between March and May 2021.

There are no healthy people on a polluted planet. In particular, deforestation, the proximity between urban zones and wilderness, and the scarcity of certain animal species, are determining factors in the development of diseases that can be transmitted from animals to humans. As such, at a time of a pandemic requiring the confinement of half of humanity, it is appropriate to analyse this crisis through the lens of the 17 sustainable development goals of the United-Nations, which guide international efforts for a better and sustainable future for all.

Faced with the challenge of protecting the planet, and the effects of climate change in particular, it is essential to develop projects to restore and protect natural ecosystems. The goal is to rethink activities in the logic of a circular economy, to limit their negative impact on nature and to create sustainable wealth. The emergence of sustainable finance is vital for the transformation of the economy towards a low-carbon and inclusive model. Finance must become a tool for health, economic and social development. But how? Finance Monthly hears from Catherine Karyotis, Professor of Finance at France's NEOMA Business School and Anne-Claire Roux, Managing Director of Finance for Tomorrow.

Financial actors must re-invent their activity to support the projects and sectors of the ecological transition, serve the real economy, and preserve biodiversity for a sustainable planet. They must apply best practices to both anticipate transition risks and protect the value of assets, face new risks linked to the physical impacts of climate change, and adapt to regulatory changes. Ultimately, they must enable the transition of the economy to a low-carbon and inclusive model.

The ethics of an investor, a banker, a fund manager, or an insurer go beyond compliance: they have to know how to place their mission of in the present and future contexts, taking into account all economic, financial and ecological dimensions. They can take the opportunity to create wealth, or rather value. To this end, they must identify new sustainable opportunities and put a long-term perspective at the heart of their financing and investment strategies.

Financial actors must re-invent their activity to support the projects and sectors of the ecological transition, serve the real economy, and preserve biodiversity for a sustainable planet.

Already, the entire sector is developing its offers, practices and trade products. Actors are mobilising, initiatives are multiplying, and new professions specialised in sustainable finance are emerging within organizations. However, this paradigm shift will not be possible without expertise and new skills.

A financial analyst must master the accounting and extra-accounting instruments and documents to carry out a joint financial and extra-financial analysis, connecting one to the other and enabling financial policy decisions to be taken in the long term.

A risk manager must know how to assess financial risks in all their dimensions, ranging from credit risk to climate risk to health risk, to then cover them by using derivative markets for this objective, not aiming for speculative short-term gains.

As an asset manager must know how to "price" a bond. Why not do so for bonds labeled "green" or "sustainable"? Likewise, beyond socially responsible investing, how can ESG criteria be introduced into passive management, and how can we revise models by developing a green beta? If we talk about alternative investments, we can also integrate “green” or “adaptation” labels, as well as "green value" into wealth management and into particular real estate investments.

[ymal]

France is at the forefront of green and sustainable finance. French financial players - whether private or public issuers, arrangers, or even extra-financial rating agencies - are the greatest specialists in "green bonds". They are pioneers in carbon accounting and the financing of natural capital. Collectively, the French financial sector constitutes a driving force for the development of sustainable finance internationally, through initiatives such as ‘Finance for Tomorrow’ and the ‘Climate Finance Day’, the ‘One Planet Summit’, or the ‘Network of Central Banks and Supervisors for Greening the Financial System’ (NGFS).

To strengthen this expertise and pass it on to the next generation of financial professionals, it is necessary to reinforce skills in sustainable finance. From an educational perspective, it is up to teachers and professionals in activity, to transmit to students the tools, which will allow them to reinvent the financial system for a secure, sustainable future.

In the aftermath of the COVID-19 pandemic more than ever, sustainable finance must become a tool for recovery and our students must become the future decision makers of a finance serving the real economy, society and the planet.

In a webcast to employees on Monday, BP chief executive Bernard Looney announced that 10,000 jobs will be cut due to the effect of COVID-19 on oil prices.

“The oil price has plunged well below the level we need to turn a profit. We are spending much, much more than we make,” he said.

Looney said that BP’s senior roles would “bear the biggest impacts”, with a new company structure seeing the number of senior-level jobs halved and group leaders cut by a third. “The majority of people affected will be in office-based jobs. We are protecting the frontline of the company and, as always, prioritising safe and reliable operations,” he continued.

This new round of layoffs, most of which will be resolved by the end of the year, marks the end of BP’s three-month redundancy freeze that has commenced since March.

In addition to reducing BP’s capital expenditure by $3 billion and operating expenditure by $2.5 billion in 2020, Looney also suggested that the company will soon be refocusing its efforts to transition away from fossil fuels, and that the COVID-19 pandemic may accelerate the process.

“To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP,” he said. “While the external environment is driving us to move faster — and perhaps go deeper at this stage than we originally intended — the direction of travel remains the same.”

Since his appointment to CEO in February, Looney has already pledged to transform BP into a carbon-neutral company by 2050.

This week Chief executive and chairman Larry Fink sent a personal letter to clients stating the firm would be focusing on sustainability as BlackRock's "new standard for investing."

“Climate risk is investment risk...Indeed, climate change is almost invariably the top issue that clients around the world raise," Fink wrote.

The firm, which manages $6.9 trillion for investors all aorund the world, communicated that it would pulling out of any "high sustainability-related risk" investments such as fossil fuels and that it would be including questions pertaining to sustainability as part of its process when building new client investment portfolios.

Fink also stated BlackRock will be weighing in its shareholder vote on many sustainability and climate issues that arise in shareholder decision making.

The CEO's letter also read: “Climate change has become a defining factor in companies’ long-term prospects.

"Last September, when millions of people took to the streets to demand action on climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity – a risk that markets to date have been slower to reflect.

“But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

In the letter Fink makes reference to climate change as a highly impacting factor in investment models, claiming that this new approach will destroy existing products and create new markets, ridding traditional investments and creating fresh and new opportunities for investment.

“What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas?” he said. “What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”

This statement will have significant impact on the proceedings and discussions that take place at the World Economic Forum in Davos next week, as the drive to protect investor value will turn towards climate change and sustainability as key considerations to factor into each and every investment.

With UN Secretary-General Antonio Gutterres warning that climate change is about to reach a point of no return - and with Boris Johnson and Nigel Farage empty-chaired for Channel 4’s climate change debate in Novermber – new research suggests the green agenda is gripping the UK investor community. Renewable energy is now a top investment choice for investors of all ages; it is equally popular with men (29%) and women (31%) and it also transcends investment philosophy. For example, active traders, those that are simply looking to make an opportune gain, place as much emphasis on renewables as those investors that act with a specific ethical investment philosophy (33% and 36% respectively).

At a time when the general election and protracted Brexit delays are casting a cloud of uncertainty over what lies ahead in 2020, GraniteShares research suggests economic and political events have powered a greater sense of conviction among investors, with 76% seeing clear investment opportunities to capitalise on. Further, more than a third of UK investors (37%) identified as being in control of their investment decisions, acting with conviction.

Given this UK appetite to amplify their investment edge, GraniteShares asked a nationally representative sample of 1,560 UK investors which sectors they would put their money into if they were looking to make a long-term gain over the next year.  After renewables, the most popular sectors were technology (28%), property (25%), and gold (22%). Technology was most popular with younger investors aged 25-34 (31%), whereas property was most popular with the over 55s (33%). Gold was evenly popular across all age groups, a top choice with around one in five investors.

In addition, pharmaceuticals and biotechnology were particularly popular with over 55s (36% and 23% respectively), cannabis was most popular among the over 40s (20%) and oil and gas was top choice among the 25-34s (17%).

With recent warnings that UK car production could plummet with a non-deal Brexit and bleak warmings of the health of the high street for the crucial Christmas season, retail (8%) and auto (7%) along with industrials were the sectors that investors were least interested in putting their money into. With all these sectors, it was older investors (over 45) that were walking away and investing their money elsewhere.

The sectors UK investors would put their money into if they were looking to make a long-term gain over the next year (by age group)

Following the recent government announcement of plans to prohibit all petrol and diesel vehicles by the year 2040, Britain is weighing up the idea of switching to ‘green’ driving more than ever before.

New research from leading comparison website MoneySuperMarket has delved into the mind of the consumer to determine just how viable this switch is. The research reveals factors such as the true cost of making the switch to electric driving versus driving a petrol or diesel car. It also explores the number of charging points currently available in major UK cities, a key factor in the viability of the plan to turn the UK electric.

The research also highlights the lack of knowledge currently being shared on the benefits of driving electric and public concerns about the feasibility of the 2040 ban.

Is the British Public Prepared?

With 49% of the British public stating that they have never considered purchasing an electric or hybrid car, it appears that education and pricing are crucial factors in the public’s apprehension to go electric. Some of the key findings from the research include:

51% of people surveyed stated price is currently the biggest barrier to them buying an electric or hybrid car.

Nearly 30% of people don’t buy electric or hybrid cars due to lack of knowledge of how they work.

62% of people don’t know that the Government offers discounts and grants on buying an electric or hybrid car

The True Cost of Driving Green

Beyond public opinion, cost is a major factor in the sustainability of the plan to move to electric and a concern for the public as a whole. Fundamental findings on the cost of buying and running electric, petrol and diesel cars revealed that, although cheaper to run, electric cars are not the most cost-effective motor to own overall. Some findings on the cost of running each car type include:

While the upfront costs of petrol vehicles were the lowest, the average running costs of an electric car are 20% cheaper than diesel and petrol engines, with an average saving of £2,109 across 6 years.

Filling up your petrol or diesel car is 5 times more expensive than electric.

Petrol cars boast the lowest average insurance premium (£697.19), whilst electric remains the most expensive to insure at £923.

If drivers switch to electric in 2018, they’ll save almost £8,000 on running costs by the time the ban is enforced.

Taking Charge in 2040

The government’s plan to turn the UK into a nation of electric car drivers rides not only on the cost of the cars over their lifetimes, but also on the feasibility of fuelling these vehicles. Having an appropriate number of public charging points will be key for the success of Britain’s electric switchover.

Data collected on the number of electric car charging points available to drivers in UK cities bring into question whether the UK as a whole is truly ready for an electric revolution. Whilst the capital performed well, with 210 charging points in Central London, other cities fell short. Large cities such as Liverpool and Cardiff had fewer than 10 raising questions over the preparedness of major UK cities for 2040.

For the full details on the true cost of driving green and how the UK is shaping up, click here to see the full research.

Methodology

To create an average for each fuel type, an average was taken of 3 of the top selling cars from petrol, diesel and electric respectively. Data for the upfront costs of each of the 9 vehicles were taken from their brand’s site as well as costs of servicing, road tax and MOT prices. The ‘lifetime’ was measured as 6 years with the average mileage of 7,900 miles a year entered onto the site nextgreencar.com to determine the fuel costs. The overall costs for each model were made into 3 separate averages for electric, petrol and diesel fuel types. The models used included:

-    Ford Fiesta Style – Petrol
-    Volkswagen Golf – Petrol
-    Ford Focus – Petro
-    Skoda Superb Estate – Diesel
-    Vauxhall Astra Hatchback – Diesel
-    BMW 3 Series Saloon – Diesel
-    Renault Zoe Signature – Electric
-    Nissan Leaf Acenta – Electric
-    BMW i3 – Electric

In order to find out the number of electric car charging points per city, the site www.zap-map.com was used.

(Source: MoneySuperMarket)