Quiet trade ahead amid Columbus Day in the Americas

12th October 2020 – Macro Daily: Week Ahead

Risk Appetite

Today is set to be quiet, with US and Canadian participants away for Colombus day (although US markets will be open as usual). S&P 500 futures trade around 0.2% higher and the Stoxx 600 is up around 0.1%, with modest gains spurred by a solid start to the week for Chinese equities after the PBoC announced that the RRR rate on FX forwards would be lowered to 0% from its current 20% level (news which also weighed on CNY and CNH).

Otherwise, financial press continues to cite US fiscal stimulus “hopes” as a risk appetite positive. The latest on that front is that the Trump administration continues to push for a “comprehensive” Covid-19 relief package, as well as the passage of a smaller bill that could utilise the approximately $1.8trln currently sat in the US Treasury cash account. House Speaker Pelosi said over the weekend that talks remain at an “impasse”, but that she remains hopeful that progress can be made. Elsewhere, Democratic Presidential Nominee Biden seemingly continues to solidify his lead heading into November 3rd’s vote; the latest ABC News/Washington Post poll has him 12% ahead holding onto a solid lead in swing states Michigan, Wisconsin and Pennsylvania.

More broadly, it looks as though, despite concern over rising Covid-19 cases across developed countries, the coming US election and continued drama over Brexit, markets might be seeing a return to the “business as usual” type trade that we saw throughout most of the summer (i.e. equities grinding higher amid a lack of good, or any, news). Mohammed El-Erian commented over the weekend that “this market wants to go higher”.

Looking at other asset classes, bond yields are marginally higher in the US, while Core European bond yields are a little lower. Crude oil markets are also a little lower, as supply dynamics override the pull of higher equity prices (Hurricane Delta has subsided allowing a return to normal production in the Gulf of Mexico, Norwegian oil firms and labour unions came to a deal to end a 10 day strike and Libya is reportedly pumping again).

G10 FX

G10 FX markets are seeing a broadly subdued start to the week amid North American holidays and the subsequent lack of important data points.

A weaker CNY/CNH has helped USD to marginal gains at the start of the week; after testing the 93.00 mark late in last Friday’s session, DXY has rebounded to around 93.10. DXY remains at risk of further downside though as long as global equities continue to see upside; aside from the psychological 93.00 handle, the next clear area of support is 92.70-80.

EUR, GBP, CAD, CHF and JPY are all pretty much flat vs USD and each other; EURUSD trades within a thin 1.1805-1.1820 range, GBPUSD topped out around 1.3060 and has since reversed lower to around 1.3040, USDJPY reversed opening gains to 105.90 and now trades around 105.50 and USDCAD has flatlined between 1.3120 and 1.3140.

EUR and GBP seem to have broadly shrugged off further alarm over rising Covid-19 cases in the continent (the UK is expected to announce a three tiered regional alert system this week) and comments from a few ECB speakers over the weekend; most notably, ECB Chief Economist Lane again sounded dovish, saying it is important to put exchange rate at the centre of policymaking, that the ECB may allow inflation to overshoot and that the ECB will be as aggressive in pursuing its inflation target as the Fed. Meanwhile, EURGBP is broadly flat around 0.9070, as markets await the next steps in EU/UK negotiations on the future relationship ahead of this week’s EU Summit (Thursday-Friday) and UK PM Johnson’s deadline for a deal to be in sight (Thursday).

Amid weakness in the Yuan, AUD and NZD have been marginal underperformers (both down just over 0.1% on the day vs USD). The outperformer is NOK, despite underwhelming price action in the crude oil complex (perhaps the end to the Norwegian oil production strike is being seen as a net-net NOK positive event, or perhaps that is reading too much what is actually pretty shallow price action – NOK is just 0.2% higher on the day vs USD).

The Week Ahead

Market focus remains on the ongoing themes of US fiscal stimulus, the US election, the international spread of and reaction to the Covid-19, as well as Brexit, but the week ahead does present plenty of interesting data points (particularly from the US) and central bank speakers.

Today – Colombus day in the US and Canada so it ought to be a quite US session, although markets are open as normal. The only data of note will be Chinese money supply and loan growth data at 1300BST/0800EDT and New Zealand Electronic Card Retail Sales (Sep) at 2245BST/1745EDT. Otherwise, Bank of England and European Central Bank speakers will take the spotlight; we have BoE’s Ramsden at 0900BST/0400EDT, ECB’s Schnabel at 0945BST/0445EDT, ECB President Lagarde at 1200BST/0700EDT, BoE’s Haskel at 1500BST/1000EDT, ECB’s de Guindos at 1600BST/1100EDT and finally BoE Governor Bailey at 1700BST/1200EDT.

Tuesday – Significantly busier from a data standpoint, although no central bank speakers of note on the docket just yet; we have UK BRC Retail Sales Monitor (Sep) and the Australian NAB Business Confidence survey in the early hours, followed by the monthly UK labour market report, Swedish CPI and German ZEW in the European morning. On the UK labour market report; most analysts expect a rise in the unemployment rate in August, given that it was the first month when the UK government reduced its contribution to workers wages via the furlough programme. Later in the day we have US NFIB Small Business Optimism, Consumer Price Inflation and Federal Budget Balance (all for September). We also get the monthly OPEC Oil Market Report.

Wednesday – Focus returns to an abundance of central bank speakers, with; ECB Chief Economist Lane, FOMC Vice Chair Clarida and BoE Chief Economist Haldane in the European afternoon, followed by FOMC’s Kaplan (twice), FOMC’s Quarles and RBA Governor Lowe in the European evening. Comments from Lowe will take the spotlight, given that November’s RBA meeting is considered “live” (a cut of 15bps in the pipeline?). Data of note includes Eurozone and Japanese Industrial Production (Sep), US Producer Price Inflation (Sep) and Weekly API Crude Oil Inventory data. We also get the release of the International Energy Agency’s monthly oil market report.

Thursday – Overnight we have the latest Australian labour market report (Sep) and Chinese Consumer Price Inflation (Sep). In the European morning, we than have Swiss PPI and the Swedish unemployment rate for September followed by the latest Bank of England credit conditions report. Things get busy in the afternoon with US weekly jobless claims, Philly Fed & NY Empire State Manufacturing indices (Oct) and Import & Export Prices (Sep), followed by BoE’s Cunliffe, BoC’s Time Lane, FOMC’s Quarles and FOMC’s Kaplan, as well as official Weekly Crude Oil inventory data and New Zealand PMI and CPI later in the evening. Note also that Thursday (the 15th of October) is the first of day of a two day EU leaders Summit, as well as the day by which UK PM Johnson has said he wants a deal to be in sight or else the UK will walk away from talks (though the EU have indicated they are prepared to ignore this deadline).

Friday – Things wrap up with arguably the week’s most important data; US Retail Sales for September. We also get Canadian Manufacturing Sales, Foreign Security Purchases and US Industrial Production (all also for September), followed by the October preliminary reading of the US Michigan Consumer Sentiment survey and NAHB Housing Market Index.

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