Regardless of who wins the White House, the battle between COVID-19 and central banks will still continue
Even though the election race may still prove to be too close to call, the market can at least bet that there are two things they can count on once this is over and done with.
One, is that the virus pandemic will still eat away at the world economy. Two, it is that central banks will still continue to ease monetary policy further going into next year.
The market is largely fixated on the election outcome for now and while that may have short-term repercussions going into the year-end, it doesn't really change much of the macro landscape moving forward.
The US is seeing a record rise in the number of virus cases going into election week and as the health crisis grows, it will start to have negative spillovers to the economy.
There is plenty of focus on the need for more stimulus by Congress but we may end up getting none in the near future and that will throw the ball back to the Fed.
Since the end of March, we have come to learn how powerful easy money can really be. Valuations don't matter anymore. However, as fiscal support wanes as the virus crisis deepens, can central banks really provide the "cure" for everything?
That is going to be a key debate in the coming weeks/months as the Fed, alongside other central banks, may very well get pushed to the limits of their policy toolbox.
