Fed Chair Powell will deliver two days of testimony in Washington DC. On Wednesday, he will testify to the House’s select subcommittee and on Thursday with the Senate Banking Committee. Powell will be asked several questions about the Fed’s new monetary strategy and if they are almost out of ammo. After Jackson Hole and the September FOMC decision, Powell will likely confirm their outcome-based guidance means rates will be lower for longer and highlight the risks to the outlook. Rates are going nowhere for a few years and all the Fed speak this week should lean towards further dovishness.
The US still does not have the virus under control as over 20 states are recording more infections when compared to the prior week. It will be difficult for governments to continue to ease COVID-19 lockdowns if the downward trend in US cases is interrupted. The upcoming round of economic data, the flash Markit PMIs and durable goods data should show economic growth rebound is slowing.
The election is nearing and President Trump may have got his groove back. Joe Biden maintains leads across the national polls but Trump is starting to chip away at his lead. Biden’s lead has fallen to 5.8-points in the RealClearPolitics poll and 6.7-points with FiveThirtyEight’s poll. Trump is benefiting from vaccine optimism and as labor market recovery heads in the right direction, unadjusted claims continue to decline, albeit still quadruple the number before the pandemic.
Policy makers from the ECB were out in force last weekend, clarifying comments from the meeting last Thursday regarding the currency exchange rate. Lagarde’s comments in the press conference gave the impression that the central bank was very relaxed about the currency’s rapid appreciation but policy makers, including Lagarde, were keen to stress otherwise. The free run at 1.20 against the dollar may not be so welcome afterall.
Especially not with Covid cases rising rapidly across Europe which threatens the recovery that had already started stalling. The ECBs optimistic assessment may be pared back between now and the end of the year. PMIs next week could provide more insight into how the situation is impacting business confidence.
Not the best week for the UK as far as Brexit is concerned. Talks with the EU are not progressing, with the Internal Market Bill only serving to further frustrate Brussels. It’s not just Brussels that’s taken issue with it, though. Democratic Presidential hopeful Joe Biden weighed in this week, warning that the Good Friday Agreement should not become a casualty of Brexit, effectively echoing Nancy Pelosi’s words last week and insisting it would not pass Congress. This is seemingly one thing both Presidential candidates are in agreement on. Boris Johnson may be able to sell no-deal to some Brexiteers, but no trade deal with the US as well? That will be a whole lot harder. Something has to give.
Coronavirus cases are spiking in the UK and more restrictions are being imposed across the country as businesses once again are forced to contend with the disruption. What’s more, the government is reportedly considering a two week lockdown coinciding with the half term school holiday’s next month which will be another hammer blow to business. On the bright side, more people are taking the government’s advice and returning to work, with the ONS claiming 62% of people went into the office last week.
The Bank of England once again discussed negative interest rates at the meeting this week, triggering another decline in the pound which has spent much of the week recovering the sharp declines suffered in September. With the risk of no deal heightened and deadline less than a month away, the pound will remain volatile and could come under pressure. I still believe a deal will be struck which should be positive for sterling. When that comes and whether the two sides can actually work to a deadline is another thing altogether.
The rand could see further momentum from the potential ending of the SARB’s easing cycle. The September decision to hold rates despite downward pressure on growth and inflation for the rest of the year likely means they are done and that next move will be a hike.
TikTok saga drags on. Very light data with creating a headline driven market with geopolitics to dominate.
China Loan Prime Rate decisions on Monday. Expected unchanged.
China activity will drop as the week progresses ahead of Mid-Autumn holiday the following week.
Covid-19 measures continue to dampen economic activity. No notable data or event risk next week.
Covid-19 continues to wreak havoc on the domestic economy, heightening fears about growth as the stability of the banking system. India has become the no 2 infected country and hit 5 million cases this week with no end in sight.
GDP shrank 23.90% in Q2 and is expected to shrink by 10+% for the year, increasing stress on the banking sector. INR appreciation has resumed, supported by e-commerce investment inflows, lower oil prices and high interest rates, with RBI unable to cut in this environment.
No significant data this week.
The New Zealand covid-19 outbreak is bartering. NZD/USD rising as a pro-cyclical recovery play.
RBNZ decision Wednesday will remain unchanged. Markets watching for comments on potential negative interest rates. Could spark a NZD/USD sell-off.
Trade relations with China continue to be a flashpoint. Relatively quiet this week though.
ACT eased interstate movement restrictions. Victoria State’s may ease restrictions next week, equity and AUD supportive.
PMI Wednesday only data of note. AUD/USD supported as pro-cyc;lical recovery play with copper and iron ore prices remaining at one-year highs.
Suga was appointed as the new Prime Minister as expected. Passed without incident.
Bank of Japan rate decision was unchanged and dovish as expected. PMI Wednesday the only significant data. Japan is on holiday Monday and Tuesday, dampening activity next week.
USD/JPY has fallen through monthly support after the FOMC telegraphed lower for longer rates. Yen could strongly appreciate with Japan away early next week.