8th October 2020 – Macro Daily
Market tone remains broadly positive on Thursday morning, with US equity indices gradually rising overnight (S&P 500 futures +0.7%) and European equities trading with solid gains (Stoxx 600 +0.6%), while USD continues to ebb lower.
Hopes for at least some “piece meal” stimulus from the US Congress ahead of the election is likely helping; White House Chief of Staff Meadows said last night that the Trump admin believes there is “broad” support for a limited stimulus package. Moreover, US House Speaker Pelosi and Treasury Secretary Mnuchin spoke yesterday on a stand-alone airline aid bill and will talk again today.
Perhaps more importantly for risk appetite; Democratic Vice Presidential Nominee Harris is broadly seen as having won the VP debate last night (a CNN polling showing 59% picked Harris as the winner vs 38% for Pence) and in the aftermath of the debate, betting markets have seemingly upped their expectations for a Biden victory on November 3rd (Real Clear Politic’s Implied odds gives Biden a 64% chance of winning, vs 35% for Trump). Thus, the risk of a contested outcome has been further reduced, allowing market focus to increasingly turn to post-election Democratic fiscal stimulus (ING think that this, combined with an FOMC determined to keep real rates lower for longer, gives the dollars a “fragile” post-election outlook).
Elsewhere, markets largely took the release of yesterday’s FOMC minutes in its stride; the minutes revealed nothing new or unexpected. More interesting were comments from Fed’s Evans soon after the release in which he said while the Fed has the capacity for more asset purchases, they are not needed right now. Moreover, he acknowledged that the Fed will soon need to provide more explicit guidance regarding asset purchase.
As noted, USD continues to trade on the back foot as the market’s wider appetite for risk improves; DXY has ebbed below its 21dma (at 93.62), but remains supported above the 93.50 mark for now. JPY lags alongside USD, with USDJPY flat around the 106.00 mark.
EURUSD is largely trading as a function of the weaker USD and is this a little higher this morning, with the single currency having largely ignored this morning’s strong German trade data. Exports grew more than expected in August (2.4% vs exp. 1.4%), but the country’s trade surplus was a little less than expected at EUR 15.7bln (exp. 18.2bln) given an even larger beat on expectations for import growth (which came in at 5.8% vs exp. 1.4%). EURUSD continues to trade within the fairly tight 1.1760-80 parameters that it has been locked in over the last roughly 24 hours. Notable resistance comes in the form of yesterday’s 1.1780 highs, then the psychological 1.1800 mark. In terms of support, we have the 21dma at 1.1763, 1.1760 (the bottom of the recent intra-day range), chunky 1.8bln in option expiries between 1.735-45 and yesterday’s low in the mid-1.1720s. EUR traders now look ahead to the release of ECB minutes at 1245BST/0745EDT.
GBPUSD is performing a little better, currently trading just below 1.2950. To the downside, the 21dma at 1.2870 and yesterday’s lows at 1.2850 ought to provide decent resistance, while to the upside the main level of note is the psychological 1.30000 handle. In terms of the Brexit latest; Sky News reported last night that some progress is being made on the issue of State Aid, while the gap between the UK and EU on the issue of fisheries remains the largest. Elsewhere, Bank of England Governor Bailey spoke to the Yorkshire Post this morning; he does not expect the second wave of Covid-19 to have the same effect as the first. Finally, the UK RICS Housing Survey reached its highest level since 2002 in September of 61 (well above expectations for 40). Amid the Chancellors recent cut to stamp duty, the UK housing market continues to boom although RICS did note that 12-month sales expectations had turned slightly more negative.
In terms of the G10 outperformers; NOK and AUD are doing the best (closely followed by GBP). CHF, CAD and SEK are up by similar margins as EUR vs USD; of note for Switzerland, the seasonally adjusted September unemployment rate came in a little lower than expected at 3.3% (exp. 3.4%). NZD is also marginally higher vs the struggling USD, but lags its antipodean counterpart following dovish RBNZ commentary overnight; the RBNZ reiterated that it is actively working on negative interest rates, as well as a funding-for-lending programme, while Chief Economist Young Ha said the bank would rather do too much too soon as opposed to too little too late. Young Ha also said that the bank is mulling a tiering regime for its negative rates plan. Note also that the NZ ANZ Business Confidence survey for October showed a solid improvement to -14.5 from -28.5 in September.
The Day Ahead
0825BST/0325EDT, BoE Governor Bailey and ECB’s Schnabel participate in panel on “the impact of the Covid-19 crisis”
0900BST/0400EDT, ECB’s de Guindos takes part in an online event organized by El Economista
0920BST/0420EDT, ECB’s de Cos participates in the online 2020 SRB conference session: “Resolution planning under the banking package”
1030BST/0530EDT, BoE’s FPC publishes its quarterly policy statement, setting out the central bank’s latest thinking on how to make sure the financial sector does not put the economy at risk.
1030BST/0530EDT, SNB Chairman Jordan delivers a speech at an Economic Conference organised by the Progress Foundation
1115BST/0615EDT, ECB’s Mersch delivers a pre-recorded speech at the 50th Anniversary of the Werner Report event organised by the Luxembourg Center for Contemporary and Digital History
1230BST/0730EDT, ECB Minutes… The ECB made no major changes to policy in its September meeting. The focus in the minutes will be splits in opinion, given divergent commentary over the last few weeks from the ECB doves and hawks, as well as source reports of an increasingly divided governing council; the hawks seem to have wanted to quietly slow the pace of PEPP buying and thought the bank’s forecasts were overly pessimistic, while the doves pushed for a stronger warning on EUR appreciation. Going forward, SEB thinks that “the all-time low core inflation in September requires the ECB to be more vocal about the further stimulus potential and cannot keep pointing fingers to the EU/national governments and asking for fiscal stimulus.”
1315BST/0815EDT, Canadian Housing Starts (Sep)
1300BST/0800EDT, OPEC will publishes its 2020 OPEC World Oil Outlook via a videoconference in Vienna, Austria.
1330BST/0830EDT, Weekly US Jobless Claims
1330BST/0830EDT, BoC Governor Macklem speaks at a Global Risk Institute event via videoconference
1710BST/1210EDT, FOMC Member Rosengren speaks on “Economic Fragility: Implications for Recovery from the Pandemic” before virtual Marburg Memorial Lecture event hosted by the Marquette University Economics Department
1800BST/1300EDT, FOMC Member Kaplan participates in moderated Q&A session before a San Antonio Chamber of Commerce virtual event
1900BST/1400EDT, FOMC Member Bostic participates in “Empowering Workers to Recover Stronger” virtual panel hosted by Rework America Alliance
1930BST/1430EDT, FOMC Member Barkin speaks before the “Investing in Rural America” online event hosted by the Federal Reserve Bank of Richmond