Market mood positive amid calm before US election storm

3rd November 2020 – Macro Daily

Markets This Morning

USD has broadly been on the back foot in recent trade, with DXY losing the 94.00 handle since Europeans arrived at their desks. There is a risk that choppiness continues ahead of tonight’s US Presidential election result. FX markets could thus be described as somewhat risk on, with NOK and AUD leading the gains (up over 0.5% vs USD on the day), with the latter have pared post-dovish RBA rate decision losses in recent trade, despite reports from SCMP that China is expected to ban imports of wheat from Australia in a further escalation of trade tensions between the two (although wheat imports are only worth AUD 560mln). GBP, NZD and EUR are the next best performers, each up around 0.4% on the day vs USD, Gains in SEK, JPY, CHF and CAD vs USD are more modest at around 0.1%-0.2%.

Elsewhere, market tone is positive and global equities continue to pare recent losses; the Stoxx 600 trades higher by around 0.7% this morning and S&P 500 futures are up a little over 0.5%. Some markets commentators have pointed to the final batch of pre-US election polls as contributing to, at the very least, an easing of some nerves that we might be in for a surprise at today’s election; CNBC had Biden ahead in six key swing states. Moreover, Biden continues to lead by 6.7% on average in national polls according to RCP. Conditions are thin so it is likely unwise to read to much into the moves higher we have seen in equities thus far on the week, but some might argue that markets are increasingly betting on a clear Biden victory on election night, meaning delay/a tighter than expected race may now carry slightly more downside risk. Oil continues to advance after reports yesterday that OPEC+ was said to be mulling continuing output cuts. Bond yields are a little higher in the US and Europe.

RBA Rate Decision

Markets expected a significant package of easing measures from the RBA this morning, and they went above and beyond; the RBA cut its three key lending rates (cash rate, 3-year bond yield target and term funding facility) to 0.1% form 0.25% and cut its rate on surplus exchange settlement balances to 0.0% from 0.1% (a little more than expectations for a cut to 0.01%). Moreover, the RBA committed to buying AUD 100bln in government bonds of maturities of 5 to 10-years over the next six months with an expected 80/20 split between bonds issued by the Australian government and by the states and territories, in addition to continuing to make the necessary purchases to keep the 3-year bond yield at 0.1%. This is much more aggressive than Westpac’s call for an “open ended asset purchase programme”. Elsewhere, the RBA reiterated that rates it does not expect to raise rates for at least three years and that more can be done if necessary.

Given the more aggressive than expected easing package from the RBA, AUDUSD fell in the immediate aftermath of the rate decision, the cross slipping as low as 0.7030 from pre-announcement levels around 0.7050. However, AUDUSD has since reversed higher aided by comments from RBA Governor Lowe who said negative rates were highly unlikely, alongside broad USD weakness that has seen DXY lose the 94.00 handle.

The Day Ahead

0900GMT/0400EDT, Riksbank Governor Ingves gives a speech and participates in a panel discussion on the Riksbank’s measures as a result of the coronavirus crisis.

1020GMT/0520EDT, Riksbank Deputy Governor Breman talks about how the financial sector can contribute to a positive development for the global sustainability objectives.

1100GMT/0600EDT – 0200GMT/2100EDT, Rough times that polls are open for US Presidential Election…

Biden is the favourite – Joe Biden is still the strong favourite to win the US Presidential election; RCP has Biden’s lead over Trump in the national polls at 6.7%, the lowest it has been at any point since early October, but roughly in line with where it was for most of August and September. State polling suggests the rate is tighter, but Biden still holds the advantage, with the latest poll from CNBC showing Biden ahead in 6 key swing states; in Arizona, he leads by 50% to 47%, in Florida by 51% to 48%, in Michigan by 51% to 44%, in North Carolina by 49% to 47%, in Pennsylvania by 50% to 46% and in Wisconsin by 53% to 45%. FiveThirtyEight gives Biden an 89% chance of winning, while betting markets are a little more cautious, putting Biden’s chances just over 60%. Democrats are also expected to win a majority in the Senate, though this battle is expected to be much closer, and to retain the house.

Not your normal Presidential election – Given the surge in mail in/early voting this year due to the pandemic (99mln Americans have already voted, 72% of the entire turnout in 2016), there is a possibility that we will not know who the next President is going to be on election night. Mail-in/early votes are likely to favour the Democrats, so Trump will need a strong turnout on the day. Eyes will as ever be on key swing states with the largest number of electoral votes; Texas, Florida, Pennsylvania, Ohio, Georgia, North Carolina and Arizona are all considered a toss up by the FT’s election calculator. Michigan, Minnesota and Wisconsin, all traditionally seen as swing states, lean Biden. Polls in Florida and Georgia close at 0000GMT/1900EDT and the pre-counted mail-in/early vote result will be quickly released, followed by the in-person vote on the night. If Trump cannot take both of these states, but particularly Florida, his re-election hopes will quickly start to vanish. 30 minutes later polls close in Ohio and North Carolina, followed by Texas, Pennsylvania and Michigan at 0100GMT/2000EDT. The result in the first three are likely to be known on election night; if Trump cannot win any of these, his re-election hopes will be considered very slim. But Pennsylvania and Michigan are unlikely to report results on election night, given their delayed timeline for counting early votes. There is a chance that, based on the results we get on election night, things might be very tight on election night, meaning that the eventual outcome of these two states could decide the election. US President Trump has continually brought up the risk that mail-in ballots, which are likely to strongly favour the Democrats, might be tainted with fraud, thus there is a chance he might contest any Biden win. Conversely, Democrat party sources have suggested that Biden will not concede the election to Trump prior to all votes being counted. Things could get messy.

Market Reaction – Clear evidence of a Biden win and Democrat Senate majority on Tuesday night (or the early hours of Wednesday, UK time) ought to be risk appetite positive (particularly AUD, NOK and CNH) and USD negative. Uncertainty as to the outcome of the election is likely to keep the likes of JPY and USD supported. Evidence that Trump is winning would see USD outperform.

1300GMT/0800EDT, German economy minister Peter Altmaier speaks at conference on legislation.

1400GMT/0900EDT, Eurozone Finance Ministers meet to discuss Banking Union operational aspects, hearing of the Chair of the Supervisory Board, recent activities of the Single Resolution Board, EUR as a digital currency, capital markets union and safety nets agreed by the EU.

1430GMT/0930EDT, GlobalDairy Trade Index (Oct)… Westpac “expect whole milk powder prices will be largely unchanged at this auction, thus consolidating earlier gains.” Prices have risen a cumulative 5% or so over the last two auctions, notes the Australian bank.

1500GMT/1000EDT, US Factory Orders (Sep)

2130GMT/1630EDT, API Private Crude Oil Inventories

2145GMT/1645EDT, NZ Labour Market Report (Q3)… TD Securities think the “Q3 Employment report is likely to show muted employment gains and limited signs of a pick-up in wages.” Moreover, continues the bank, “expect to see hours worked pick up as businesses use existing hires to pick up the slack while a rise in the participation rate is likely to drive the increase in the unemployment from 4% to nearer to 6%. Participation rate 70%, job growth -0.5%.”

Battered market licks wounds ahead of US GDP, ECB, big Tech earnings

29th October 2020 – Macro Daily

Market Update

Markets are this morning in a more positive mood, with risk assets broadly paring back some of yesterday’s steep losses, despite both France and Germany confirming earlier rumours that both countries will be heading into national lockdowns imminently. The Stoxx 600 trades higher by around 0.5%, while S&P 500 futures are up 1.0%, ahead of a key events including US Q3 GDP, an ECB rate decision and a busy slate of earnings including from the likes of Tech heavy weights Alphabet, Amazon, Facebook and Apple, who are all reporting after the US close and have a combined market capitalisation of the Nasdaq 100 of 36%. Other asset classes are somewhat more mixed/subdued; USD marginally firmer, crude oil markets are very marginally lower, while US yields are broadly a tad lower.

Some off the move higher in equities is likely being driven by a combination of profit taking and position adjustment following yesterday’s bloodbath (the S&P 500 closed more than 3% lower), whilst positive news on the Covid-19 front is also being attributed as supportive for risk appetite; Regeneron’s Covid-19 treatment trail met it primary and secondary end-points, resulted in a significant hospitalisation rate and was well-tolerated by patients. Meanwhile, trail data from Eli Lily on its Bamlanivimab treatment showed that it might be effective in reducing symptoms and hospitalisations in infected patients.

G10 FX

AUD, NZD, CAD and GBP are the best performers, amid the pick-up in global equities. AUDUSD is back above 0.7050, USDCAD back below 1.3300 and NZDUSD back to the 0.6650 mark, having broadly shrugged off strong NBNZ Business Confidence survey data for October, which rose to -15.7% from -28.5% in September, while the NBNZ Activity Outlook rose to 4.7% from -5.4%. Meanwhile, GBPUSD continues to trade around 1.3000, as the cross continues to feel the tailwinds from a more positive tone on Brexit that lifted it off lows close to 1.29000 yesterday; as a reminder, Bloomberg was told by its sources close to EU/UK trade discussions that progress was made on key issues, making a November deal more likely.

All four currencies trade off highs amid a recent uptick in USD which has taken DXY back to 93.50 and also lifted JPY slightly. Recent minor USD strength has sent mainland European currencies into negative territory; EURUSD is has slipped around 0.1%, back from the 1.1750 mark to the 1.1730s, CHF is also lower on the day by around 0.1% and NOK and SEK are the underperformers, each lower vs USD by over 0.2%. Traders are bracing themselves for today’s ECB meeting (will Lagarde tee up an expansion to the PEPP) and preliminary German CPI numbers for October. JPY, meanwhile, was broadly unaffected by last night’s BoJ interest rate decision, where the bank kept policy on hold as expected (interest rate at -0.1% and 10-year JGB targeted at 0%), as well as soft retail sales data for September that saw a surprise M/M contraction of -0.1% (exp. +1.0%).

The Day Ahead

0855GMT/0455EDT, German Labour Market Report (Oct)… German unemployment change is expected to come in at -5k in October, with the unemployment rate seen unchanged at 6.3%.

1230GMT/0830EDT, US Annualized Q3 GDP, Weekly Jobless Claims… GDP fell at a staggering 31.4% annualized rate during Q2, with the drop in economic activity as a direct result of the stay-at home orders issued/businesses closures that were enacted across the country in response to the Covid-19 pandemic. The virus continued to spread throughout summer and into the Autumn, with the country seeing a second wave in the South and West, and now experiencing a third wave in the Mid-West. However, the US economy has largely reopened, resulting in an improvement in economic conditions. Wells Fargo “estimate that real GDP expanded at a 28.6% annualized rate in Q3. Stimulus checks and expanded unemployment benefits have significantly boosted household incomes, which likely fuelled a rapid recovery in consumer durable goods spending.” Turning to weekly jobless claims numbers; initial jobless claims dropped below 800k for the first time since the onset of the pandemic last week and are seen coming in at 775k today, but remain persistently high in October and consistent with the notion that improvements in the labour market in the US have slowed in October.

1245GMT/0845EDT, ECB Rate Decision, 1330GMT/0930EDT, Press Conference… Markets don’t expect any new policy announcements at the October ECB meeting. However, most analysts expect a dovish slant to the meeting, with the ECB teeing up an increase to the PEPP whilst acknowledging growing risks to the growth and inflation outlook on the back of rising Covid-19 cases and regional lockdown measures. We look for Lagarde to leave the door wide open to augmenting the PEPP in December, which most analysts are now expecting. Consensus expectations are currently for a EUR 500bln expansion to the PEPP in December.

1300GMT/0900EDT, German CPI (Oct Prelim)

1400GMT/1000EDT, US New Home Sales (Sep)

2245GMT/1845EDT, NZ Building Consents

2350GMT/1950EDT, Japanese Industrial Production (Sep)

Ugly scenes in European markets as continent crashes towards Covid lockdown

Market Update

European equities are taking a further battering on Wednesday morning (Stoxx 600 -1.9%), with most indices trading at levels not seen since early June (though France’s CAC 40 hit lowest levels since May and the FTSE 100 hit lowest levels since April). European bond markets are also reflective of this morning’s strongly risk off tone; Core bonds are in high demand, with Bund yields at their lowest since the 13th of March, while peripheral (Italian and Spanish) yields are up. Focus is still very much on the pandemic; the jump in Covid-19 related infections, hospitalisations and deaths continues to alarm authorities and the coming winter lockdown restrictions look ever more draconian. Selling today comes on the back of what has already been a rough week for European equity markets; on the week, the Stoxx 600 is now down over 3.0%, and France’s CAC 40 down nearly 6%. With the news on the Covid-19 front unlikely to get better any time soon in Europe, it is hard to see when European equity markets might be able to get some respite.

The latest on the Covid-19 front;

France saw its daily Covid-19 related death count jump above 500 yesterday, while Covid-19 infected patients now occupy 57.5% of France ICU beds, up from 42.9% one week ago. A government spokesperson warned that the county could only be two weeks away from having the same number of people in ICU beds as during the first wave. Thus, the French government is now looking at a month-long national lockdown to combat the pandemic which could take effect from as early as this Thursday, with the announcement likely to come at 1900GMT/1500EDT when French President Macron delivers a national televised address.

Elsewhere in Europe, Germany is reportedly looking at a 2-week lockdown, which would see the closure of all non-essential businesses, as well as schools, and might also close the nation’s hospitality sector until the end of November. In the UK, PM Johnson is reportedly under pressure to enact harsher lockdown measures, as the daily death count continues to march higher (367 died of Covid-19 yesterday, the highest in five months).

The bad news is not just reserved for Europe; one newswire had Covid-19 deaths in the US rising to just shy of 1k yesterday, and daily reported infections was close to recent highs in the 70ks. Cases have reached record levels recently in more than 20 states, including Illinois, Tennessee, New Mexico, Nebraska and Utah. Only seven States are not seeing a rapid trend higher in infections rates.

Thus, US markets are fairing little better than their European counterparts, with S&P 500 futures trading 1.2% lower and US bonds firmly in demand. In terms of other asset classes, USD and JPY are dominant in FX markets, gold is under pressure but keeping its head above $1900 and crude oil markets trade in the red.

G10 FX

Unsurprisingly given broader risk off conditions, havens USD and JPY top the G10 performance table this morning. A post-EU cash open acceleration of selling in European equities has seen USD surge to highs for the week in the 93.30s, while USDJPY has maintained its broadly downwards trajectory on the week thus far, having this morning hit fresh lows since September of beneath 104.20.

AUD is the next best performer on the day, and trades only marginally lower on the day vs USD; AUDUSD was trading with strong gains, reaching highs of above 0.7150 before USD began picking up as the European session got under way, sending the cross back into the 0.7120s. A few domestic factors have been supporting AUD;

1) Australian Q3 CPI data is one factor supporting the Aussie; the inflation report was broadly firmer than expected, with the Q/Q rate of CPI coming in at 1.6% (exp. 1.5%). Moreover, the RBA’s trimmed mean measure came in at 0.4% Q/Q (exp. 0.3%) and 1.2% Y/Y (exp. 1.1%).

2) RBA Board Member Harper was on the wires last night and seemingly pushed back on negative rates; negative rates would result in cash hoarding, he said.

Meanwhile, as noted in yesterday’s Macro Daily, Australia has its own Covid-19 outbreak largely under control and Victoria is actually opening back up this week. This contrast to the worsening situation in other major developed economies is also likely to support AUD going forward (and NZD as long New Zealand keeps its outbreak under control as well, though this has not been the case this morning).

Then we have CAD, NZD, CHF, EUR and GBP, all down between 0.3-0.4% on the day vs USD, all trading as a function of USD strength. With very little by way of important Eurozone or UK data coming up today, USD dynamics looks set to continue to dominate the price action for EUR and GBP at least, though any comments regarding how the latest round of Brexit talks went when they end later today will of course be interesting. A rate decision from the BoC ought to offer some distraction for CAD this afternoon from global themes, even if rather fleeting.

In terms of the price action this morning; EURUSD has extended on losses since losing the 1.1800 handle yesterday and now trades in the 1.1760s, GBPUSD is attempting to press below the 1.3000 level as I type, USDCAD has burst back above the 1.3200 handle and NZDUSD has slumped to lows of the day and back below 0.6700 in recent trade.

Finally, NOK and SEK are this morning’s two worst performers in the G10, with NOK’s woes worsened by disappointing September core retail sales. The data out of Sweden was a little more upbeat this morning (though not enough to stem the SEK selling), with the Economic Sentiment Indicator rising to 96.3 in October, which according to Nordea, indicates “a strong recovery before the second wave of COVID-19 in Europe”. Swedish retail sales was also upbeat, rising 0.8% M/M in September (up from a -0.2% contraction the month prior).

The Day Ahead

1115GMT/0715EDT, ECB’s Hernández de Cos speaks online at “ESBG Retail Banking Conference 2020: Coping with crisis thanks to deep local roots” organized by the European Savings and Retail Banking Group.

1230GMT/0830EDT, US Advanced Goods Trade Balance (Sep)

1400GMT/1000EDT, Bank of Canada Rate Decision, 1500GMT/1100EDT Press Conference… Most analysts do not expect any major changes to BoC policy at tomorrow’s meeting; rates are seen being held at the bank’s effective lower bound (ELB) of 0.25% and the bank is expected to reiterate that policy will remain highly accommodative “until slack is fully absorbed” in its statement on monetary policy. Despite recent comments from the BoC Governor that NIRP is in the bank’s toolkit, most analysts do not see it as under active consideration. The tone of the statement is expected to be cautious; the bank will note how the North American economic recovery since July has been better than expected (hence the upgrade to the economic forecasts in the MPR) and may praise ongoing fiscal support in Canada. However, they will likely also point to growing risks posed by the worsening global state of the Covid-19 pandemic, sluggish domestic inflation and a lack of fiscal aid south of the border. Asset purchases is where things are somewhat more uncertain; the BoC has unwound a number of its more unconventional emergency liquidity programmes over the last few months, resulting in a contraction in the size of its balance sheet, but its flagship asset purchase programme is seen by most analysts as remaining unchanged at its current rate of CAD 5bln per week. The full Macro Intel BoC Preview can be found here: https://macrointel.co.uk/2020/10/27/boc-takes-the-back-seat-with-cad-focused-on-external-factors/

1430GMT/1030EDT, Weekly EIA Inventories

2350GMT/1950EDT, Japanese Retail Sales (Sep)

BoC takes the back seat with CAD focused on external factors

27th October 2020 – Bank of Canada Rate Decision Preview

At 1400GMT/1000EDT on Wednesday the 28th of October, the Bank of Canada releases its latest interest rate decision and statement on monetary policy, as well as its latest Monetary Policy Report (MPR) containing updated economic forecasts. The meeting will be followed by a press conference with Governor Macklem and Deputy Governor Wilkins at 1515GMT/1115EDT.

EXPECTATIONS

Most analysts do not expect any major changes to BoC policy at tomorrow’s meeting; rates are seen being held at the bank’s effective lower bound (ELB) of 0.25% and the bank is expected to reiterate that policy will remain highly accommodative “until slack is fully absorbed” in its statement on monetary policy. Despite recent comments from the BoC Governor that NIRP is in the bank’s toolkit, most analysts do not see it as under active consideration. The tone of the statement is expected to be cautious; the bank will note how the North American economic recovery since July has been better than expected (hence the upgrade to the economic forecasts in the MPR) and may praise ongoing fiscal support in Canada. However, they will likely also point to growing risks posed by the worsening global state of the Covid-19 pandemic, sluggish domestic inflation and a lack of fiscal aid south of the border. Asset purchases is where things are somewhat more uncertain; the BoC has unwound a number of its more unconventional emergency liquidity programmes over the last few months, resulting in a contraction in the size of its balance sheet, but its flagship asset purchase programme is seen by most analysts as remaining unchanged at its current rate of CAD 5bln per week.

MPR

Given the data since July, it is clear that July’s Monetary Policy Report was far too pessimistic, as far as growth in 2020 in concerned anyway. Q2 GDP came in almost 2% above the BoC’s forecast and TD Securities are tracking Q3 growth at an annualised rate of 45% (vs the BoC’s July forecast of 31.3%). Thus, the bank’s forecasts for Canadian GDP in 2020 (previously -7.8%) ought to receive a significant upgrade; TD Securities forecast that the drop in GDP in 2020 will be roughly 5.7%. However, this more optimistic take on the economy is unlikely to extend to 2021; with a faster rebound from the March/April hit in 2020 comes the prospect of less “easy progress” ahead. Moreover, the 2021 forecast in July assumed no material second Covid-19 wave in Canada; this has already begun to materialise. TD Securities expect the bank’s 2021 growth forecast to be downgraded by 0.5%-1.0%, consistent with the BoC’s notion that the recovery is likely to slow as it progresses, as well as the downbeat Q3 Business Outlook Survey. In terms of inflation, CPI forecasts are unlikely to see sizeable tweaks (previously 0.6% for 2020 and 1.2% for 2021), and will in any case remain well below the BoC’s 2% inflation target, indicating that lift off is still some way away (2023 in the bank’s base case outlook).

QE, YCC

Following a rush of stimulus back in late Q1/early Q2 as the Covid-19 pandemic sent the much of the world into lockdown, the BoC has been winding its neck back in; the Canada Mortgage Bond (CMB) Purchase Programme will stop at the end of October, the final Bankers’ Acceptance (BA) Purchase Facility operation will be held on October 26th, T-bill purchases have been scaled back from 40% of each issue to 10% and purchases of provincial bonds have dropped to roughly half their pace since late May. “The decision to scale back its credit easing programs reflect a broad improvement in financial conditions,” observes TD Securities, “but we do not think they should be interpreted as a sign that the Bank is looking to tighten policy more broadly”. The investment bank takes the BoC at face value when they say that the Provincial program will continue until its scheduled conclusion next May. Meanwhile, TD Securities thinks there is a risk that the BoC might opt to go down the route of Yield Curve Control (YCC). 30-year bond yields are up 22bps since the July MPR, whilst 10-year yields are up a more modest 13bps, hardly signalling an imminent need to keep government borrowing rates in check. However, TD Securities argue that Governor Macklem “has been proactive through the first three months of his tenure, and if the BoC concludes that YCC will ultimately be necessary in Canada, he may not wait for a sell-off”. TD adds that when the BoC tweaked its forward guidance earlier on in the year to emphasise that it would not be raising rates for a long time, there was not too pressing a need to do so at the time, rather the BoC was just seeking to get ahead: they may apply similar thinking to YCC?

NIRP

As negative rates discussion heats up at the BoE, RBA and RBNZ, investors naturally question whether the BoC might also be tempted by the allure of NIRP. Indeed, earlier in the month BoC Governor Macklem did comment on negative rates, noting that they remain in the toolbox. TD Securities saw this comment “purely as a factual acknowledgement that negative rates are in the toolbox” and, while “it struck some in markets as a change in view… if the BoC was seriously considering a revision to the ELB we have to believe they would’ve done much more to lay the groundwork for the policy shift.” CIBC express similar sentiment; “it’s clear to us that the Bank of Canada, having passed over the opportunity to go below 0.25% when the economy was in even more dire straits in the Spring, believes that lower rates, given the squeeze they put on the workings of the banking system, would not be helpful.” On Macklem’s recent comments regarding NIRP being in the BoC’s toolbox, they comment “when someone says “never say never” about something, as Governor Macklem did in reference to negative rates, the implication is that it’s not under active consideration. Instead, repeated references to 0.25% as the effective lower bound speak volumes about the Bank’s disinclination to view a lower rate as a useful tool.”

CAD

Changes to the MPR will likely drive most of the market reaction to tomorrow’s meeting, thinks ING, though “with the probabilities of further stimulus by the BoC being rather low, we doubt the impact on CAD will be sizeable” they add. Thus, CAD dynamics for the rest of the week will likely be determined by external factors, such as pre-US Presidential election nerves and the continued worsening of the global Covid-19 pandemic. “Any risk aversion driven downside should prove corrective rather than a change in trend” comment Credit Agricole, whose “big picture view” continues to favour CAD strength

Dollar demand steady as equities look heavy

27th October 2020 – Macro Daily

Market Update

Equities were nursing a mild recovery this morning, after the worst day on Wall Street since September. However, since the European cash open, sentiment has again taken a turn for the worse. US S&P 500 futures trade just 0.1% higher and the Stoxx 600 is now lower by around 0.3%. Crude oil markets cling onto mild gains, while DXY has recovered back to yesterday’s highs around 93.10. Turning to the major themes driving sentiment;

In terms of Covid-19 lockdowns in Europe, reports allege that France is considering the re-imposition of full lockdown restrictions as soon as Friday in Paris, Lyon and Marseille (this would mean a 7pm curfew and closure of all public transport and non-essential businesses). In terms of US fiscal stimulus talks, we still have no deal Pelosi said the Trump admin is refusing to accept the Democrats’ Covid-19 testing plan, but that she is still optimistic that a deal can be reached prior to the election. Meanwhile, Politico reported that, according to sources, some progress has been made, but not nearly enough to make a deal close. Meanwhile, ACB has been had her nomination to the Supreme Court confirmed in the Senate.

G10 FX

As noted, DXY is back at yesterday’s highs amid the recent further deterioration in risk appetite, with focus now on US Durable Goods Orders (Sep Prelim) and CB Consumer Confidence (Oct) in the early European afternoon. Technically speaking, last Monday’s low at 93.22 and the 50dma at 93.26 ought to provide resistance to the upside, whilst, DXY first major area of support is last week’s low of just below 92.50.

CAD (yesterday’s worst performer) has managed to reverse its fortunes and, in a market characterised by technical corrections this morning, is one of this morning’s outperformers, alongside NOK; USDCAD strongly rejected a test of its 21dma (currently at 1.3218) yesterday and has since managed to extend losses back below the 1.3200 handle and its 50dma (currently at 1.3198). Eyes on tomorrow’s BoC meeting.

Meanwhile, EUR, GBP, CHF and SEK have all seen selling vs USD in recent trade; EURUSD is currently testing its 50dma (at 1.1798) and the 1.1800 mark, with focus this morning on the results of the ECB’s latest lending survey. Meanwhile, GBPUSD has managed to hold above 1.3000 for now, with eyes on this morning’s CBI Distribute Trades survey for an early read on the performance of UK retailers in October.

Meanwhile, AUD, NZD and JPY are holding up better, and each still trade flat on the day vs the dollar. AUDUSD continues to trade within its 0.7100-0.7150 range of the last few days, while NZDUSD remains fairly subdued just below 0.6700, following last night’s NZ trade data that saw the country’s trade balance come in bang in line with expectations for a trade deficit of just over NZD 1bln (exports at NZD 4bln and imports at roughly NZ 5bln).

In terms of the latest from the RBA, Deputy Governor Debelle last night commented on the economy; he noted that the economic impact of the Victoria lockdown was not as bad as feared and not enough to bring national GDP growth into negative territory. He refused to comment on policy changes when pressed on next week’s meeting. Meanwhile, we had Bullock this morning speaking on financial stability (the Australian financial system is in a good position to support the economy, he said, though he sees pressure on bank profits ahead).

The Day Ahead

0825GMT/0425EDT, German Economy Minister Altmaier speaks at Franco-German business event.

0900GMT/0500EDT, ECB Lending Survey (Sep)

0900GMT/0500EDT, ECB’s Centeno speaks at a banking conference in Lisbon.

1100GMT/0700EDT, UK CBI Distributive Trades Survey (Oct)… An early snapshot into UK October retail activity. Lloyds Bank note that “while the reported sales balance improved to +11 in September, it is expected to ease back to around -1 in October… consistent with the decline in GfK consumer confidence reported last week, with the resurgence in coronavirus infections leading to renewed restrictions to tackle the pandemic and concerns about wider economic prospects.”

1200GMT/0800EDT, Riksbank Deputy Governor Flodén participates in virtual roundtable and discusses the state of the Swedish economy and how the central bank is addressing the crisis.

1200GMT/0800EDT, Spain’s economy minister Nadia Calvino to speak at conference in Madrid.

1230GMT/0830EDT, US Durable Goods Orders (Sep Prelim)… Durable goods orders grew at a sluggish rate of 0.5% in August, marking a sharp slowdown on the impressive M/M gains of 11.7% in July. Wells Fargo note that “the downshift for the month was partially owed to a 4.0% drop in motor vehicle orders, as pent-up demand for autos from the lockdown period looks to be showing signs of exhaustion.” Meanwhile, Core orders held up better, posting an increase of 1.8%. Wells Fargo think that “the better-than-expected outcome in core orders in August suggests that the recovery in capex is not coming to a grinding halt.” However, the bank adds that “considering the recent strength… some softening in growth in coming in months is likely.”

1400GMT/1000EDT, US CB Consumer Confidence (Oct)… CB Consumer Confidence surprised on the upside in September, reaching its highest levels since March of back above 100, although this is still substantially below pre-pandemic levels of closer to 120. SEB think that “slowing momentum in the labour market recovery is a downside risk going forward, as is the failure of policy makers on agreeing on a new stimulus package.”

1400GMT/1000EDT, Federal Reserve Bank of Richmond issues Survey of Manufacturing Activity and Survey of Service Sector Activity for October.

1430GMT/1030EDT, Federal Reserve Bank of Dallas issues Texas Service Sector Outlook Survey for October.

1445GMT/1045EDT, Bank of England Chief Economist Haldane due to appear in conversation in an online event.

1500GMT/1300EDT, ECB’s de Cos attends forum held by Expansion newspaper. 2030GMT/1630EDT, Weekly API Private Inventories

26th October 2020 – G10 FX Correlations Weekly

Correlations breaking down ahead of US Presidential election

26th October 2020 – G10 FX Correlations Weekly

Correlations between major G10 FX pairs and equity and commodity markets broadly weakened last week, as focus increasingly turns to next week’s US Presidential election.

G10 to equities

As Charts 1 and 3 show, DXY’s negative 30-day rolling correlation to the S&P 500 and Stoxx 600 weakened by between 0.1-0.2. Similar drops in the strength of USD majors positive correlation to the S&P 500 and Stoxx 600 were also witnessed; CADUSD remains the most sensitive to both indices, while JPYUSD continues to have virtually no correlation to either.

Moreover, as Chart 2 shows, AUDJPY, NZDJPY, CADJPY and GBPJPY all saw substantial drops in the strength of their 30-day rolling correlations to the S&P 500 from around +0.6 to as low as +0.4 (for GBPJPY).

Chart 1
Chart 2
Chart 3

G10 to Commodities

30-day rolling correlations of most G10/USD major pairs drop to virtually zero over the course of the last week. The exception is CADUSD, which maintains a modest positive correlation to the front-month WTI crude oil futures contract of just above +0.2.

Chart 4

In contrast to the above, Chart 5 shows that G10/USD major pairs saw a much more modest decline in the strength of their 30-day rolling correlations to Refinitiv’s Commodity Index (WTI only constitutes around 25% of this index).

Chart 5
Chart 6

Gold is the exception – rolling 30-day correlations between Gold and G10/USD majors strengthened last week; EURUSD continues to have the highest correlation with the precious metal, which is at multi-month highs of around +0.8.

Chart 7

Risk appetite rattled as Covid-19 cases surge in Europe

26th October 2020 – Macro Daily: Week Ahead

Market Update

Amid renewed focus on the worsening state of the Covid-19 pandemic, we are seeing a broadly risk off start the week; European indices trade with heft losses (Stoxx 600 -0.5%), US index futures (-0.9%) and crude oil markets are also in the red, while US and European bond markets, as well as USD are finding a bid from increased haven demand.

Both Italy and France reported record cases over the weekend; over 20k new cases were reported yesterday in Italy and over 50k in France, though French medical officials are reportedly estimating that there are currently over 100k new infections per day. Italian, Spanish and Belgium officials announced tighter lockdown restrictions over the weekend (restrictions on business and hospitality in Italy, a state of alarm in Spain with an overnight curfew, while Brussels has closed sporting & cultural facilities), while French officials are threatening further measures lie ahead. Unfortunately, the bad news is not just been coming from Europe; the US posted a record daily increase in infections over the weekend and China is struggling to contain a localised outbreak in Xinjiang.

The Covid-19 news has not all been bad; the Oxford Uni/Astrazeneca vaccine has reportedly triggered protective antibodies and T-cells in the elderly and the duo has resumed its vaccine trail in the US. Moreover, J&J’s recently halted trail is also reportedly set to resume soon. Nonetheless, as the northern hemisphere heads into winter (people spend more time indoors and viruses spread more easily), it seems reasonable to expect that things are going to get worse before they get better regarding state of the global spread of the virus, with tighter economic restrictions set to follow. Thus, risks of a “W” shaped recovery are rising.

G10 FX

As noted above, USD is putting in a solid performance today amid Covid-19 fear triggered risk off market conditions. DXY has managed to rally back to the 93.00 level from Sunday open levels around 92.70. Last Thursday’s 93.12 high and the 50dma at 93.26 could provide some resistance, while last week’s lows of just under 92.50 could provide support.

NOK, CAD and EUR are the worst G10 performers; the former somewhat unsurprisingly given that its high beta & correlation to risk appetite in general. Meanwhile, with a large part of the weekend’s bad Covid-19 news focused in Europe, particularly regarding new lockdown restrictions, perhaps it is also unsurprising to see EUR underperform, with traders also considering the impact the continued worsening of the European outbreak will have ECB thinking at this week’s meeting (most analysts expect the bank to signal more QE to come in December).

Thus, EURUSD has been generally on the back foot since the Sunday open, and has fallen to around 1.1830 from previously above 1.1850. This morning’s October German IFO data was largely shrugged off given we already had the more widely followed preliminary October PMI release last Friday (IFO showed a decline in business confidence, with the headline Business Climate Index dropping to 92.7 from last month’s 93.2).

The best performers aside from USD, are AUD and NZD, despite the market’s generally risk off feel; perhaps both are finding support as financial markets are reminded how well both Australia and New Zealand have generally managed to cope with the Covid-19 pandemic. Indeed, as the picture looks increasingly ugly in Europe and the US, Australia and New Zealand have the virus under control and are heading into Summer (people set to spend more time outdoors, reducing transmission). AUDUSD and NZDUSD currently both trade flat on the day vs USD, with AUDUSD having held up well above the 0.7100 mark and now trading in the 0.7130s and NZDUSD looking likely to soon test the psychological 0.6700 level.

Elsewhere, GBP, JPY, CHF and SEK are the middling G10 performers and all trading in the red against the strengthening buck. GBPUSD has managed to hold up well above the 1.3000 mark, amid a seemingly positive Brexit mood; EU Brexit Negotiator Barnier and team extended their stay in London by three days to Wednesday, although this is partly due to rising Covid-19 cases in Brussels, where increased restrictions have just been implemented.

Meanwhile, USDJPY has been pressing higher, though the cross for now remains contained below 105.00. Many banks have noted that JPY has been responding positively to tightening in the pre-US election polls between Biden and Trump that seemingly increase the chances of a risk appetite negative contested outcome; the RCP average of polls, having tightened by around 3% over the last two weeks, stabilised over the weekend, with Biden’s lead still at around 8% on average. With the election just over one week away, JPY would likely be the G10 winner amid any further declines in Biden’s lead.

The Week Ahead

With the US Presidential election in eight days, shifts in national and swing state polling will be closely scrutinised; as noted above, any movement in favour of a Trump re-election will likely be a risk appetite negative, given the increased odds of a contested outcome. Any movement in favour of Biden ought to ease fears and be risk appetite positive. As things stand now, according to the FT’s election calculator (which uses the latest RCP data), Biden has 207 electoral college votes, as well as 66 votes from states that are leaning in his favour. As long as he wins all of these states, he would get 273 electoral college votes (above the 270 needed for a majority) and would win the Presidency. Trump only has 83 solid votes and 42 that are leaning his way. 140 electoral college votes, including from the states of Texas, Florida, Ohio, North Carolina, and Arizona are all considered a toss-up. Even if Trump wins all of these, that will not be enough to secure the Presidency. He needs to get back some of the states that are currently leaning in favour of Biden; including Pennsylvania, Minnesota, Michigan, Wisconsin and Colorado.

Meanwhile, the worsening state of the global Covid-19 pandemic will also continue to dominate imagination, while markets might show greater fatigue towards tedious talks between the White House and Democrats on fiscal stimulus (which many have now come to conclusion is just a pre-election façade by both sides who are just making it look as though they are “trying to get something done”). Meanwhile, Brexit talks (also somewhat tedious at this point) will continue in London until the mid-week; most do not expect any movement towards compromise to come until closer to the new mid-November deadline the two sides agreed on last week.

Monday – A quiet start to the week. Out of the US, we have new homes sales (Sep); August saw the strongest pace of sales since September 2006. Wells Fargo think that “despite record-low mortgage rates, it will likely be difficult to sustain such a rapid pace of sales.” The bank reasons that “employment growth appears to be moderating, which may soon begin to cut into demand for housing… Inventories also remain low, suggesting builders are selling homes faster than they can build them.” Moreover, “lumber prices have begun to ease recently but remain very high, which may delay new construction.” Wells Fargo conclude that thought they expect new homes sales to remain strong in September, “some moderation in growth is likely in the months ahead”. Following US housing data we have SNB’s Jordan. In the evening, focus will be down under with the release of NZ trade balance data for September. Note also; Chinese leaders this morning commenced a three day meeting after which they will be unveiling the PRC’s 14th five year plan; ING think this could prompt more flows into Chinese asset markets.

Tuesday – Overnight focus will be on China industrial profits from September, followed by RBA’s Bullock just before the European session begins. In the European morning we then have the ECB’s latest lending survey (Sep). We then have the preliminary estimate of US durable goods orders (Sep) followed by US CB Consumer Confidence (Oct). In the evening we have weekly private crude oil inventories.

Wednesday – Australian CPI for Q3 will be the highlight of the overnight session. We then have Retail Sales numbers from the Scandis. The focus of the afternoon will be US advanced goods trade balance, followed by the Bank of Canada Rate decision and press conference, weekly EIA crude oil inventories. In the evening, focus will be on a speech from FOMC member Kaplan and Japanese retail sales.

Thursday – NZ confidence data from ANZ and Australian confidence data from NAB will be in focus overnight, as well as the Bank of Japan’s latest rate decision. In the European morning, we have German Labour Market numbers. Things get busy after Europe’s midday; we have US Q3 GDP numbers (a big rebound expected), the ECB Rate decision and press conference, German preliminary CPI (Oct), US weekly initial jobless claims data and then US New Home Sales. In the evening, NZ Building Consents and Japanese Industrial Production will be in focus.

Friday – A busy morning of Eurozone data, we have GDP numbers (first from the individual countries, then from the Eurozone on the whole), as well as individual country then Eurozone preliminary CPI data (Oct). In the early afternoon, we get US Core PCE and personal income & spending data (Sep), as well as Canadian GDP numbers (Aug). We then have US Chicago PMI (Oct), US Uni of Michigan Consumer Sentiment (Oct). In the early hours of Saturday morning, following market closure for the week, we get Chinese PMI numbers for October.

Sentiment subdued despite better-behaved debate

US Presidential Debate

Last night’s US Presidential debate was significantly more restrained in comparison to the first (almost certainly due to the fact that Trump and Biden both had their mics muted when they were not speaking). Both candidates were seen as more Presidential this time around, though some might view Trump’s comparatively larger improvement as a win for the incumbent. Others argue, however, that Trump failed to land the necessary blows that will be needed for him to further close Biden’s lead in the polls; “whether the debate will affect public opinion remains to be seen” states SEB. “Although Trump has begun to narrow down Biden’s lead in recent polls, the question is whether the time will be enough” continues the bank, noting that “with just 12 days left, Biden’s lead is still significantly larger than Clinton’s was four years ago… (and) 47.5 million Americans have voted early (this corresponds to more than a third of all votes cast in the 2016 election).” For reference, FiveThirtyEight (who came closest to the truth in 2016) puts Biden’s chances of winning at 87%, the Economist Magazine’s election model gives Biden a 93% chance of winning, while betting markets imply the probability of a Biden victory at about 65% vs 35% for Trump.

Markets

Markets this morning are mildly risk off, with US index futures and government bond yields a little lower, while in FX markets USD and JPY are the outperformers (DXY back above 93.00). In truth, US equities continue to trade with ranges since Tuesday (S&P 500 futures trade close to the midpoint of the 3400-3460 range that has been in play since Tuesday). European indices look somewhat heavier, though (futures) still trade above yesterday evening lows (for now); the Covid-19 news is still mostly negative, with Italy potentially set to face a national curfew within a week if cases continue to rise at the current pace, and cases in France spiking (more than 40k cases reported yesterday alone), and this could continue to weigh on sentiment this side of the Atlantic, though to be fair, the Covid-19 news in the US isn’t much better; US cases went back above 60k for the first time since early August, although the appetite for further lockdown seems lower than in Europe. Meanwhile, crude oil markets are conforming to the downbeat tone, with front month WTI and Brent contracts trading in the red.

Looking more closely at action within the G10; modest underperformance is being observed in SEK, NOK, GBP and CAD; sterling has seemingly shrugged off strong August retail sales numbers (core retail sales was up 1.6% on the month vs exp. 0.5% and headline was up 1.5% M/M vs exp. 0.4%), and eyes preliminary PMI October numbers at 0930BST/0430EDT, followed by a speech by BoE Deputy Governor Ramsden at 1500BST/1000EDT. EUR is also a touch lower, also eyeing the release of PMI data imminently. Elsewhere on the data front; soft Q3 CPI out of New Zealand (came in at 0.7% vs exp. 0.9% Q/Q, 1.4% vs exp. 1.7% Y/Y) appears not to have had a lasting impact on the kiwi; NZD is flat vs USD on the day, as is AUD and CHF. As noted, JPY is an outperformer.

The Day Ahead

0815BST/0315EDT, French Preliminary PMIs (Oct)… Just came out and was a little softer than expected; manufacturing fell to 51.0 as expected, services fell to 46.5 (exp. 46.8) and composite fell to 47.3 (exp. 48.0). EUR showed very little reaction, and EURUSD has largely held above 1.1800.

0830BST/0330EDT, German Preliminary PMIs (Oct)… Manufacturing PMI is seen remaining reasonably firm at 55.1, although still down from last month’s 56.4 reading. Services PMI is seen dropping below 50 to 49.2 and Composite PMI is seen dropping to 53.2 from 54.7.

0900BST/0400EDT, Eurozone Preliminary PMIs (Oct)… Aggregate Eurozone Manufacturing PMI is seen dropping to 53.1 from 53.7, Services is seen dropping to 47.0 from 48.0 and Composite is seen falling below 50 for the first time since July. Oxford Economics “ascribe the fall mainly to the worsening health situation, with infections on the rise across the Eurozone.”

0930BST/0430EDT, UK Preliminary PMIs (Oct)… Consensus expectations are for UK Services PMI to drop to 55.0 from 56.1, Manufacturing to slip to 54.3 from 54.1 and Composite PMI to drop to 55.6 from 55.7. Nomura expect that “further falls are likely – to below 50 – in the coming months on account of tighter restriction measures.”

1445BST/0945EDT, US Preliminary Markit PMIs (Oct)… Manufacturing PMI is seen posting a slight increase to 53.4 from 53.2, while Services is seen holding steady at 54.6.

1500BST/1000EDT, Bank of England Deputy Governor Ramsden chairs a conference on COVID-19 and financial stability.

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.

Perky yuan/risk appetite exacerbates USD’s woes

21st October 2020 – Macro Daily

Market Update

Risk appetite pretty mixed this morning, with major European equity indices a little softer (Stoxx 600 -0.2%), but US index futures trading with gains (S&P 500 futures +0.4%). US and German bond yields are broadly higher (and curves steeper), as is gold (+0.6%) and crude oil markets (although only very marginally).

Some have pointing to stimulus “jawboning” from Pelosi last night as one reason why US markets might be feeling a little more upbeat this morning; she said last night that her and Mnuchin are “moving closer” to a deal and will speak again today, that she is hopes to reach a deal by the end of the week and that she thinks there can be more Covid-19 aid prior to the election (something which, as some commentators have noted, represents the “best case scenario” from a market standpoint).

Questions still remain over whether any bill agreed on by Pelosi and Mnuchin would be able to pass the GOP controlled Senate; we also had plenty of (albeit mixed) news flow yesterday regarding Senate GOP Leader McConnell’s reluctant stance on stimulus; WaPo reported that he had warned the White House not to pursue a large package, that he doubts it is logistically possible to pass a deal into law ahead of the election and that he thinks a deal is unlikely to get voted on prior to election day. However, reports did indicate he would “consider” any deal presented to him. ING argued yesterday that markets for the most part do not expect any stimulus to pass before the election, thus if (or when depending on how much of a pessimist you are) stimulus talks collapse, risk asset downside out to be limited.

Perhaps the bigger story today is strength in CNY (up 0.5% vs USD) amid the PBoC’s firmest yuan fix since July 2018 of 6.6781 (PBoC measures to reduce the RRR on FX forwards as a means of slowing the appreciation rate of CNY by making it cheaper to short one week ago feel a long time ago already). No particular theme or headline is behind today’s yuan strength (CNH is also up around 0.4% vs USD); rather focus is instead on the ongoing themes of increasingly divergent international growth stories (which increasingly seems to favour growth China vs the US and Europe), as well as a the potentially shift to a more pro-Chinese growth international order that a Biden Presidency would bring.

CNY/CNH strength is hurting USD and G10 FX markets are very much risk on this morning…

G10 FX

The Day Ahead

0830BST/0330EDT, ECB President Lagarde and Chief Economist Lane host an “ECB Listens” event, part of the bank’s broad strategy review.

0830BST/0330EDT, Swedish National Debt Office forecast… According to SEB, “the central government budget balance has been far less weak than expected and we predict the Swedish National Debt Office (NDO) to lower the 2020 budget deficit forecast by SEK 200bn in the revised forecast and financing plan on 21 October.”

1100BST/0600EDT, ECB Vice President de Guindos speaks at a webinar organised by Pontevedra’s Entrepreneurs Confederation and University of Vigo Faculty of Economic and Business Sciences (FEBS)

1310BST/0810EDT, BoE MPC Member Ramsden attends Society of Professional Economists Online Conference 2020: Post COVID – Policy Challenges for the Global Economy “UK Monetary Policy: Issues and Outlook”

1330BST/0830EDT, Canadian Consumer Price Inflation & New House Price Index (Sep), Core Retail Sales (Aug)… TD Sec “looks for inflation to rise to +0.3% y/y in September reflecting base effects, as monthly inflation is forecast at -0.3% m/m compared to last September’s print of -0.4%.” Energy prices will remain a drag on headline inflation, they think, “subtracting roughly 0.4 p.p. from the Y/Y figure as gasoline prices remain approximately 10% below their levels from last September.” In terms of the BoC’s Core measures, TD expect them “to hold around their current average of 1.7% Y/Y, though the persistence of slack in the economy suggests that risks will skew towards lower core CPI metrics.”

1350BST/0850EDT, FOMC Member Brainard speaks on “Economic and Monetary Policy Outlook” before the Post-COVID Policy Challenges for the Global Economy, online conference hosted by the Society of Professional Economists

1400BST/0900EDT, ECB’s Macklouf and Ireland deputy governor Donnery at a parliamentary committee.

1455BST/0955EDT, ECB Chief Economist Lane participates in an online panel discussion at the Workshop on International Capital Flows and Financial Policies

1500BST/100EDT, FOMC Member Mester speaks on monetary policy before virtual Money Macro and Finance Society Annual Monetary and Financial Policy Conference

1530BST/1030EDT, EIA Weekly Crude Oil Inventories… Yesterday saw a surprise build in headline APID Inventories of +0.59mln bbls (exp -1mln bbls), as well as a larger than expected build in Cushing of +1.12mln bbls (exp. +1.1mln bbls). However, Distillates posted a significantly larger than expected draw of nearly -6mln (exp. -1.7mln), and gasoline also drew -1.62mln.

1700BST/1200EDT, FOMC Member Rosengren speaks before virtual Maine Working Communities Challenge Announcement Event hosted by the Federal Reserve Bank of Boston.

1700BST/1200EDT, FOMC Member Kaplan participates in virtual moderated question-and-answer session on “The Current State of the Economy” hosted by the Houston Hispanic Chamber of Commerce.

1700BST/1200EDT, FOMC Member Kashkari speaks on “Amending the Minnesota State Constitution to Guarantee a Quality Education for All Students” before virtual event, “From ‘Adequate’ to ‘Quality’: A Constitutional Amendment for Minnesota

1700BST/1200EDT, FOMC Member Daly participates in moderated question-and-answer session before virtual Professional Speechwriters Association World Conference.

1700BST/1200EDT, ECB Vice President Luis de Guindos speaks on the occasion of the awarding of the Germán Bernácer Prize in an online ceremony organised by Banco de España.

1800BST/1300EDT, FOMC Member Quarles participates in “Financial Stability” panel before virtual Managed Funds Association Outlook Conference.

1800BST/1300EDT, FOMC Member Barkin participates in panel on “Rural Virginia’s Economic Recovery” before virtual Virginia Rural Center Governor’s Summit on Rural Prosperity

1900BST/1400EDT, Fed issues the Beige Book of economic conditions… Nomura think that the Beige Book “prepared for the November FOMC meeting will likely report continued recovery in consumer spending and industrial activity, albeit at a more moderate pace”. They continue; “incoming data indicated continued strength in auto sales and personal service spending as reopening activity continued. That said, consumer spending on goods excluding autos appears to be slowing with fading fiscal support.” While industrial sector data continued to recover, Nomura think that the Beige Book will likely reflect the ongoing concerns over the trajectory of the pandemic and uncertainty over the upcoming US elections. Moreover, they add, “the Beige Book will likely indicate continued commercial real estate sector weakness and further acceleration in housing market activity.” Finally, on the labour market, amid weak incoming data which implies continued moderation in the pace of recovery (plateauing initial unemployment claims in early October), Nomura “expect more anecdotal evidence on the slowdown in labour market recovery and the industry composition of this slowdown.”

2330BST/1830EDT, RBA Assistant Governor Debelle to deliver keynote address and participate in Fireside chat – The future of global code – at FX Week Australia 2020