COVID-19 vaccine progress is positive signal but domestic challenges persist

The last few weeks have been marked by intense fluctuations in the financial markets’ mood. At the international level, the outcome of the American elections, the promising test results of some COVID-19 vaccines and the worsening of the pandemic, particularly in Europe, contributed to this behavior.

Joe Biden’s victory in the presidential elections was in line with the polls, but it was more difficult and disputed than they predicted. The Congressional elections were also less favorable for the Democratic Party than polls had signaled. The Republicans expanded their presence in the House, although without gaining control of it. In the Senate, on the other hand, it seems that the Republicans will maintain their majority.

Judging by the behavior of asset prices, the financial markets welcomed the unexpected division of power between Democrats and Republicans, even though this may mean a more modest recovery in activity and employment in 2021.

Advances in the discovery of an effective vaccine have generated optimism and increased risk appetite, as the likelihood of a safer health solution to stop the pandemic next year has grown. Everything indicates that by the end of the year, several companies will have requested authorization to produce and distribute their vaccines, which have proven highly effective. By the middle of the first half of 2021, it seems probable that a comprehensive vaccination program will be under way, at least in developed countries.

This positive news about vaccines reduced the impact of the failure to approve a robust new fiscal package in the U.S. this year. The divided Congress, President Donald Trump’s stance on the election results and the surprisingly high vote he received have helped maintain the political impasse between Republicans and Democrats and make it unlikely that a new fiscal package will be approved by the current administration.

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