European markets brace for new lockdown measures and potential US Democratic sweep

(YAHOO Finance)- European markets are bracing on Wednesday as more countries put stricter lockdown measures in place to curtail the spread of COVID-19 and the first of two votes in the Georgia Senate race goes to Democrats.

The FTSE 100 (^FTSE) opened higher 0.8% in London at the market open. Germany’s DAX (^GDAXI) gained 0.4% in Frankfurt, while the CAC 40 (^FCHI) was also up 0.7% in Paris.

US futures markets cooled a bit as the US Senate votes are still being counted. The S&P (ES=F) futures were down 0.2%. Dow Jones (YM=F) gained 0.4% and the Nasdaq (NQ=F) fell 1.7%.

After a brief relaxation of coronavirus restrictions over the holiday season, the UK and its continental peers are putting tougher regimes in place. The UK has now entered its third lockdown, France lifted its second national lockdown on 15 December but has extended a nationwide curfew. Finally, Germany is in its second lockdown, which is also expected to be extended until the end of January.

There are also increasing concerns about the new strain of COVID-19 found in South Africa that could undermine the effectiveness of vaccines, which could force pharmaceutical companies to go back to the drawing board.

Markets are also very much focused on the outcome of the dual runoff US Senate vote in George, which will play a decisive role in determining how far-reaching president-elect Joe Biden’s policies will go, including the size of the next stimulus bill.

The vote count from the first Georgia face suggests the Democrats have won one of the seats, with the other still too close to call.

At approximately 7.57am in London, with roughly 98% of votes counted, US TV networks and the Associated Press news agency have called the first race for Democratic candidate Raphael Warnock, which would unseat Republican Kelly Loeffler. Democratic challenger Jon Ossoff also holds a slim lead over Republican David Perdue in the other race, with 98% of votes counted, according to Reuters.

Full control of the Senate in the first two years of Democratic President-elect Joe Biden’s term will be determined by the outcome of the second runoff.

A Democratic sweep would be a severe blow to president Donald Trump, who tried to pressure state officials to overturn the election results in a recorded call that was published earlier this week.

In a note from Deutsche Bank, analysts said “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.”

The Senate election is being held again because none of the candidates in the November general election had achieved the 50% needed for victory under state rules.

Asian markets were mixed ahead of the final US Senate vote count. While Japan’s Nikkei (^N225) fell 0.4% at market close, the Hong Kong Hang Seng (^HSI) leapt up 0.2% and the Shanghai Composite (000001.SS) also gained 0.6% at market close. South Korea’s KOSPI (^KS11) headed lower 0.8%.