5th October 2020 – Macro Daily
Markets begin the week in a reasonably upbeat mood, with major European equity bourses opening with solid gains (Stoxx 600 +0.9%), which is being mirrored over in the US (S&P 500 futures +0.6%). Meanwhile, crude is a little higher, the US treasury curve a little steeper and USD is flat but has had a downside bias.
A few factors are being cited as boosting risk appetite: US President Trump’s health condition is reportedly improving (reports suggest the possibility that he could be discharged as soon as today), the tone of US fiscal stimulus talks is also better (House Speaker Pelosi: we are making progress, Senate Majority Leader McConnell: we are getting closer and Kudlow: we are in the neighbourhood of USD 1.5trln for a stimulus deal) and Democratic Presidential Nominee Biden’s national lead over Trump has widened substantially to 14% according to the latest, post-debate NBC/WSJ poll.
Looking more closely at FX markets; moves are generally modest. Amid the improved market tone, JPY is the G10 underperformer (down 0.2% vs USD after BoJ Governor Kuroda gave us nothing new in this morning’s speech). GBP is the next worst performer, and is marginally lower vs USD; GBPUSD is off overnight highs in the 1.2950 region to trade in the 1.2920s.
UK PM Johnson and EU Commission President von der Leyen spoke as planned over the weekend regarding the Brexit situation. Both noted that while substantial progress had been made as of late, large gaps remain and, as such, Chief Negotiators EU’s Barnier and UK’s Frost had both been instructed to accelerate the pace of talks. No mention of a deadline for talks to conclude was mentioned in the joint Johnson/von der Leyen statement on the their discussion, but Johnson seems for now to be sticking to his 15th October deadline.
Elsewhere, EUR, NOK, AUD and NZD are broadly flat, as the former awaits October Sentix Investor Confidence data at 0930BST/0430EDT then today’s Eurogroup meeting starting at 1100BST/0600EDT and the latter tonight’s NZIER Business Confidence data for Q3. AUD awaits tonight’s RBA rate decision. CHF, SEK and CAD are outperformers, the former awaiting weekly sight deposits data at 0900BST/0400EDT.
The Day Ahead
0900BST/0400EDT, Final Eurozone Services & Composite PMI (Sep)
0930BST/0430EDT, Final UK Services & Composite PMI (Sep)
0930BTS/0430EDT, Sentix Investor Confidence (Oct)… Seen snapping a five month improvement streak in October, with Investor Confidence expected to fall slightly to -9.5 from -8.0.
0930BST/0430EDT, BoE Chief Economist Haldane delivers opening speech at seminar… In his last speech, the BoE’s Chief Economist’s main point was to note that he thinks that the UK’s better than expected economic recovery is not being given enough credit and that the “prevailing economic narrative among businesses and households currently is unduly negative”. Elsewhere, he again pushed back strongly against negative rates, saying none of the conditions for them are yet satisfied. Most expect that he will reiterate this sentiment this morning.
1100BST/0600EDT, Eurogroup Meetings (participation by ECB President Lagarde and Panetta)
1500BST/1000EDT, ISM Services PMI (Sep)… The pace of the economic recovery in the US has slowed since July, (as shown by August ISM Services PMI and August/September jobs data). Markets look for a continuation of this trend in today’s latest ISM services reading, with a slight dip in the headline to 56.3 from 56.9 in August. Further driving home expectations for more weakening of the headline number ahead; last month’s business activity and new orders sub-indices saw substantial drops (the former to 62.4 from 67.2, the latter to dropping more than 10 points to 56.8). Wells Fargo comment; “considering that COVID-19 continues to circulate and many restrictions on close-contact services remain in place, we expect services activity to continue to moderate in coming months”.
Fedspeak: 1500BST/1000EDT, Fed’s Barkin, 1545BST/1045EDT, Fed’s Evans, 2015BST/1515EDT, Fed’s Bostic.