FX unfazed as global stock sentiment sours

22nd October 2020 – Macro Daily

Market Update

It was another choppy session on Wall Street last night, as investors remain seemingly undecided as to whether or not US fiscal stimulus talks are a complete farce (many have suggested Congressional insiders, as well as numerous market commentators, have suggested that talks are all about pre-election optics, making it look like they are “trying”), or whether we might actually be surprised before the end of the week by an announcement that the White House and Democrats had reached a deal. Of course, any deal would still need to get through Congress (eyes would be on the Republican controlled Senate) in unprecedented time for Americans to get the support prior to the election. That might be why the Democrats and White House are increasingly suggesting that the stimulus itself could actually come after the election.

All told, the S&P 500 closed down 0.2% last night, but the futures market took a knock (as did global equities) overnight after the US FBI Director said that Russia and Iran had taken action to interfere with the election (the FBI claims that Iran sent “spoof” emails to intimidate voters, for example). European equities have extended on these overnight losses following a bearish cash open, with the Stoxx 600 down 0.9% at the time of writing. Indeed, the rate at which Covid-19 cases are rising on the continent continues to alarm, as does the rise in hospitalisation and death rates (deaths per day in France and the UK is back into the hundreds per day, with many fearing it could rise close to 1k per day as it was during the peak of the pandemic).

Lockdown stringency looks set to continue to rise across the continent, as indicated most recently in comments from Spain’s Health Minister, who said drastic measures are needed as the pandemic is not under control in Spain. Consumers continue to feel the impact; the German GfK Consumer Climate index for November dropped to -3.1 from last month’s -1.7 and ING highlight the growing risk of a double dip recession in Germany.

In terms of how all of this is affecting other asset classes; US and German bond yields are a little lower this morning, amid an increased demand for havens, though this has not translated into G10 FX markets, which are currently mixed, while USD is flat.

G10 FX

NOK and NZD are modest outperformers this morning, despite downside in global equity markets and disappointing Norwegian unemployment data for August this morning (the unemployment rate came in at 5.3% vs exp. 5.1%). Norwegian Industrial Confidence did post a solid rise to 1.7 in Q3 from -9.6 in Q2, however.

Meanwhile, GBP and SEK are the modest underperformers, the former unwinding some of yesterday’s stunning gains (which were at the time driven by Brexit optimism now that talks are back on and targeting a deal for mid-November) and awaiting BoE’s Bailey, Haldane, CBI Industrial Trend Orders (Oct) and UK Chancellor Sunak’s economic update all this morning, the latter seemingly unfazed by the latest Riksbank Business Survey, which (unsurprisingly) concluded that the economy has improved following a substantial hit to demand in the spring due to the first Covid-19 wave.

Meanwhile, USD, EUR, JPY, CHF and AUD are all broadly flat, awaiting further impetus from US fiscal stimulus talk updates, further election news (does Biden’s lead continue to narrow?) and US data (weekly jobless claims and existing home sales).

The Day Ahead

0930BST/0430EDT, BoE MPC Member Haldane attends Opening remarks at Rebuilding Macroeconomics Understanding Social Macroeconomics Third Annual Conference

1025BST/0525EDT, BoE Governor Bailey attends The Waterline summit 2020 – International Business Day ‘Why the world needs the Humber?’

1100BST/0600EDT, UK CBI Industrial Trend Orders (Oct)… Lloyds comments that “the latest CBI industrial survey will include the more detailed quarterly readings. Those are likely to show that businesses remain very reluctant to spend money and that investment intentions in particular are very weak.”

1130BST/0630EDT, UK Chancellor of the Exchequer Sunak delivers an update on the economy to the House of Commons, where he is expected to unveil a “major” and “generous” new offer to help firms affected by tier 2 Covid-19 restrictions, according to Politico.  

1330BST/0830EDT, US Weekly Jobless Claims… Initial jobless claims rose 53k to 898k during the week ending October 10th, an elevated reading by historical standards. However, somewhat more promisingly, continuing claims declined 1.2mln to 10.0mln during the week ending 3 October. However, notes Nomura, “the recent decline in continuing claims for regular state programs appears to be driven by individuals reaching their 26-week maximum benefit period, which varies by state, and rotating over to the federally funded Pandemic Emergency Unemployment Compensation (PEUC) program. Since the September BLS reference week, continuing claims in regular state programs have declined 1.6mn NSA, but only 500k after incorporating individuals on extended benefits. As a result, regular continuing claims overstate the labour market recovery.” Therefore, the bank concludes that “the recent plateauing in initial and total continuing unemployment claims is consistent with our view that the labor market recovery is moderating.”

1500BST/1000EDT, US Existing Home Sales (Sep)… Wells Fargo are “looking for an above-consensus 6.2% rise in September existing home sales, versus a 3.3% consensus increase. Our stronger estimate is based on the continued strength in pending sales and mortgage purchase applications, as well as strong reports from realtors around the county.”

1500BST/1000EDT, Eurozone Flash Consumer Confidence (Oct)… SEB not that “after an initial rise during the early summer, consumer confidence has not rebounded in line with some other indicators and have continued to be on relatively low levels. This is not surprising given worries on the outlook, people still on temporary leave and employment falling. Given rising infections and a worsening mood in the labour intense service sector, anything but a decline would be surprising. Still, as reimposed measures are still less severe than what we saw during the spring, the decline will most probably be relatively limited compared to the large swings that we have seen so far this year.”

1810BST/1310EDT, FOMC Members Barkin and Daly participate in “Fireside Chat: Coast-to-Coast – Leading through the Pandemic” before virtual Women in Banking Symposium hosted by the Fed

2245BST/1745EDT, New Zealand Consumer Price Inflation (Q3)… Westpac “expects a 0.9% rise in consumer prices for the September quarter, lifting the annual inflation rate slightly to 1.6%. Food, fuel and local body rates made the biggest contributions to the quarter. We expect that Covid-19 will have a disinflationary impact over time, although the near-term impact may have been more mixed. Our forecast is below the Reserve Bank’s estimate of 1.1%. An upside surprise would be the more meaningful risk in terms of future monetary policy moves.”

2300BST/1800EDT, Australian Preliminary Manufacturing PMI (Sep)

2300BST/1800EDT, FOMC Member Kaplan leads discussion on national global and economic issues before a fourth fall virtual Federal Reserve Bank of Dallas Global Perspectives speaker series.

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