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Risk assets declined notably last week as coronavirus cases reached new record highs and investors lightened up ahead of the Presidential elections. Yen and US Dollar outperformed Euro was the worst performer on a return to lockdowns (which now see England and Portugal joining the group of France, Germany, Spain and soon Italy) and a dovish ECB meeting. AUD was also weak as traders priced further RBA easing while the Loonie was pressured by steep fall in oil prices.
The week ahead will be dominated by the US elections between Tuesday night and Wednesday Morning. Markets want clarity, so a clear win will likely spark a relief rally in risk assets while anything else will keep markets volatile.
All other news will likely be uninfluential, but GBP might weaken a tad into the week on the unexpected lockdown announcement.
Themes for the Week
- Trump or Biden: the US elections are finally here. Markets want a clear result and polls suggest a clear win for Biden. Hence, the risk is that the election is closer than anticipated and leads to a contested outcome.
- FOMC: in the aftermath of the elections, the FOMC is not expected to make any changes to it’s current stance. This month’s meeting is unlikely to generate much volatility.
- RBA & BOE: on the contrary, both the RBA and the BOE are expected to expand QE this week. As such, the meetings should be more eventful.
- Jobs: Non-Farm Payrolls are due, as well as Canadian employment but the data might be less influential than usual with Covid-19 cases rising and US elections taking the spotlight.
Data in the Week Ahead:
- US ISM Manuf. PMI (Mon)
- RBA Decision (Tue)
- US Presidential Elections (Tue)
- NZ Employment Change (Tue)
- US ISM services PMI (Wed)
- BOE Decision (Thur)
- FOMC Decision (Thur)
- RBA MPS (Fri)
- CAD Employment Change (Fri)
- US NFP (Fri)
- BOC’s Macklem Speech (Fri)
Correlation Report:
Comment: In the short-term, equities, commodities, metals and USD are closely linked, with bonds clearly moving opposite. The same tendency is visible, to a lesser extent, on the 10 day and 20 day scales.
On the Radar:
Into Friday’s Close, the strongest signals were weakness in AUD and EUR vs. strength in JPY and USD. AudNzd remains a trending cross-rate. Obviously things will change depending on the US elections, so perhaps a short-term stance is more appropriate this week.