19th October 2020 – Macro Daily: Week Ahead
US equity index futures trade with reasonable gains (S&P 500 futures +1.0%, Nasdaq 100 futures +1.1%, Dow futures +0.9%), amid a risk on start to the week. US/China tensions have been in the spotlight this weekend (China warned the US it may detain Americans in response to the prosecutions of Chinese scholars, reported the WSJ), but pre-US election stimulus hopes appear to be winning out, with Republicans and Democrats still seemingly pushing for a deal; US House Speaker Pelosi gave the White House a 48-hour deadline on Sunday to strike a deal, with Pelosi and US Treasury Secretary Mnuchin are expected to talk today. Moreover, US President Trump said over the weekend that he wants an even bigger stimulus deal that House Speakers Pelosi’s proposal (of $2.4trln).
Across the pond, European equities also trade in the green (Stoxx 600 +0.8%), despite a continued rise in virus cases over the weekend and more countries announcing stricter lockdown measures (this weekend it was Italy’s turn). Eslwhere, US bond yields are mostly higher and crude oil markets are marginally higher amid the risk on tone, and as participants of the latter eye today’s JMMC meeting, which starts at 1430BST/0930EDT.
Despite the somewhat risk on tone in global equity markets, USD trades flat, with DXY rangebound between narrow 93.65-75 parameters, close to its 21dma at 93.73. Fed’s Rosengren and Kashkari delivered remarks over the weekend that were critical of the bank’s lack of tools to prevent firms from taking on excess leverage, as well as the market’s dependence on Fed intervention. We have plenty more Fed speaker to digest this week, kicking off with Powell, Williams, Clarida, Kashkari, Bostic and Harker today.
EUR is also flat. ECB commentary over the weekend was as expected; ECB President Lagarde reiterated that policy will be kept supportive for as long as needed and ECB’s Panetta sounded dovish (ultra-easy policy is “all the more necessary” amid rising Covid-19 risks to the Eurozone’s economic recovery. EURUSD meanders just above 1.1700 for now, with its 21dma at 1.1736 the first notable level of resistance, followed by last Friday’s high around 1.1745.
GBP is an outperformer this morning, posting reasonable gains of around 0.4% vs USD and EUR amid focus on Brexit news; the UK may be willing to “water down” its controversial Internal Market Bill as a means of kick starting stalled negotiations (as a reminder, the UK said that talks had essentially ended last Friday, given the EU signalling the full onus to compromise was now on the UK’s side). Talks between UK Brexit Negotiator Frost and EU’s Barnier look to be on for this week.
With Brexit stealing the limelight, GBP has largely ignored a downgrade to AA3 from AA2, Outlook Stable, at Moody’s. The Rating Agency said it believed growth would be “meaningfully weaker” than it had previously believed and that the country’s economy had been struggling even before the pandemic reached Britain.
As has been the case for most of the month thus far, GBPUSD has thus managed to hold above its 21dma which currently sits just below the 1.2900 mark, the cross having advanced towards the 1.2950 mark. To the upside, last Friday’s 1.2960 high marks the first area of notable resistance, followed by the psychological 1.3000 level and the 50dma at 1.3019. Meanwhile, in a similar vein, EURGBP has managed to stay below its 21dma (as has also been the case for most of the month so far) at 0.9101, the cross falling below 0.9050 in recent trade. To the downside we have last week’s lows just above 0.9000 level.
Elsewhere, risk sensitive NZD, AUD, NOK and SEK are doing well, underpinned primarily by the market’s positive risk tone. NZD appears to have taken this weekend’s election result in its stride; PM Ardern won a landslide victory, with here party taking 49.1% of the vote and securing a rare outright parliamentary majority.
Meanwhile, CAD is also nursing modest gains vs USD ahead of today’s BoC Business Outlook Survey, while JPY and CHF are subdued amid the lack of demand for havens. Finally, USDCNH is flat despite the firmest PBoC CNY fixing of the year, following mixed overnight Chinese data release; Q3 GDP growth was a little disappointing at 2.7% Q/Q (exp. 3.2%) and 4.9% Y/Y. However, activity data for September was strong, with Industrial Production up 6.9% Y/Y (exp. 5.8%) and retail sales up 3.3% Y/Y (exp. 1.8%).
The Week Ahead
The evolutions of the Covid-19 pandemic, Brexit and US politics remain the most important market themes in terms of their impact on sentiment, but there will plenty of focus on this week’s busy data schedule, of which preliminary October PMIs on Friday are likely to be the highlight. We also have plenty of central bank speak; FOMC members speak 19 times and ECB GC members 10 times and we also have a few BoE, Riksbank and RBA speakers. Meanwhile, crude oil market participants will be eyeing the OPEC+ JMMC meeting which starts from 1430BST/0930EDT.
Monday – Plenty of data and central bank speakers to keep us on our toes on the first day of what will be a busy week. In terms of data, we have Weekly Swiss Sight deposits, Canadian Wholesale Sales (Aug), US NAHB House Market Index (Oct) and NZIER Business Confidence (Q3). Meanwhile, Central Bank watchers will be eying speeches from Fed’s Powell, Williams, Clarida, Kashkari, Bostic, Harker, ECB’s Lagarde and Lane, BoE’s Broadbent and Cunliffe (twice) as well as Riksbank’s Skingsley, as well as the BoC’s Business Outlook Survey.
Tuesday – The heavy slate of data and speakers continues on Tuesday, starting with RBA Assistant Governor Kent, the release of the minutes of the October RBA meeting and a LPR rate decision from the PBoC in the early hours of the morning. In the European morning, we have German PPI (Sep), followed by Riksbank’s Ingves and Ohlsson, BoE’s Vlieghe and ECB’s de Cos. In the European afternoon/evening, we have US Building Permits and Houseing Starts (Sep), followed by Global Dairy Trade Price Index data, as well as FOMC speakers Quarles, Evans, Brainard and Bostic. We also have Private oil inventories.
Wednesday – Main data points are UK CPI, PPI and Public Sector Net Borrowing (Sep), Swedish National Debt Office forecasts, Canadian CPI, New Home Price Index and Retails Sales, as well as EIA crude oil inventories. We also have another day packed with central banks speakers, with ECB’s Lagarde, Lane (twice) and de Guindos (twice), BoE’s Ramsden and FOMC Members Brainard, Mester, Kaplan, Kashkari, Daly and Barkin, as well as the Fed’s Beige Book. In the late evening, we also have RBA Assistant Governor Debelle.
Thursday – Another busy day of data releases, with overnight focus on Australian NAB Quarterly Business Confidence, followed by German GfK Consumer Climate (Nov), Norwegian Industrial Confidence (Q3) and Unemployment Rate (Aug), UK CBI Industrial Trend Orders (Oct), US Weekly Jobless Claims, US Existing Home Sales (Sep), Eurozone Flash Consumer Confidence (Oct) and New Zealand Consumer Price Inflation (Q3) and , Australian Preliminary Manufacturing PMI (Oct) in the evening. We also have speeches from ECB’s Panetta, BoE’s Haldane and Bailey and FOMC’s Barking, Daly and Kaplan.
Friday – The final US Presidential Debate starts in the early hours of the European morning, the outcome of which will be a crucial determinant of sentiment as the election rapidly approaches. But preliminary Japanese, Eurozone, UK and US October Markit PMI data will steal some market attention. Otherwise, we also have Japanese CPI (Sep) and UK Retail Sales (Sep).