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*Reminder: this will be a holiday-shortened week with US closed for Thanksgiving on Thursday.
Last week was more of the same: concerns about Covid-19 cases/deaths and lockdowns tampered by positive news on the vaccine front. Brexit remained in limbo although markets continue to bet on a resolution. At the same time, markets continue to discount a Biden presidency come January, although some analysts suggest Trump is down, but not out.
Weekend press was positive on Brexit, so GBP might remain bid into this holiday-shortened week. On the other hand, markets need to balance the short-term pain (Covid-19 spread and lockdowns) with long-term gain (vaccines and clear US political situation).
AUD might get a “like” this week as Premier Andrews announced that Victorians will be able to go outside without masks for the first time since mid-July.
Volatility contracted further last week, with “inside weeks” posted across multiple instruments. As such, volatility expansions should now be expected.
Themes for the Week
- Covid-19: lockdowns are back and markets are still looking through the restrictions, towards fiscal stimulus in 2021 and vaccine developments. However, vaccines probably won’t reach the average Joe for a while and governments seem to be using lockdowns with less worry about the damage they inflict on the economy. Risks are probably more to the downside still.
- Brexit: a deal was supposed to be in the cards for early this week, but the negotiators had to flee into quarantine after Covid-19 struck. Headline risk remains high.
- Black Friday: traders will be watching high frequency reporting of online sales this week and next, to evaluate whether consumer spending is alive & well, or whether lockdowns and Covid-19 have taken an even harder toll than expected.
Data in the Week Ahead:
- EU PMIs (Mon) à Should come in lower as lockdowns dampen sentiment and business activity.
- BOE Minutes (Mon)
- GER IFO (Tue) à Should come in lower as lockdowns dampen sentiment and business activity.
- UK Autumn Forecast Statement (Tue)
- RBNZ FSR (Tue)
- RBNZ’s Orr Speech (Wed)
- ECB FSR (Wed)
- US GDP Q/Q (Wed) à Could come in lower than consensus as retail sales and wages were lower recently.
- FOMC Minutes (Wed)
Correlation Report:
Comment: Equity markets remain tightly correlated, although in the short-term it appears soft-commodities are diverging, showing a stronger correlation with bonds. USD also remains a key driver in the short and longer term.
On the Radar:
As of Friday’s close, the strength-weakness relationships in FX were unchanged: NZD remains the leader vs. USD, EUR and (to a certain extent) CHF. Equities are losing steam despite remaining in their uptrends. Crude Oil also remains in it’s recent uptrend.