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*Reminder: Markets are closed in North America and France on Wednesday.
The aftermath of the US elections left the US Dollar weak, with all major pairs posting outside weeks. However, there are still some questions that need answering: will the Republicans take the Senate, hence creating political gridlock (which would be slightly bearish for risk assets); will President Elect Biden be able to push forth his stimulus plans soon?
Political gridlock would potentially mean a lack of any immediate fiscal stimulus, which puts more pressure on the FED to do more. However, the immediate reaction to Biden’s victory this week might be a boost in risk assets since Trump’s legal battle isn’t gaining traction, but also that without Trump there may be more international cohesion.
Hence, focus may shift back to more immediate issues: Covid-19 case count, the impact of lockdowns and central bank dovishness.
Themes for the Week
- President Elect Biden: risk assets may remain supported, and the USD pressured, after Joe Biden captured the US presidency on Saturday. USA allies have quickly congratulated Joe, including China. Markets will now focus on Biden’s stimulus package.
- Elections Aftermath: Team Trump vowed to contest the results, but there is little support from within the Republican party. The only real issue is whether the Senate will be controlled by Republicans or not, and it seems we will need to wait until January to find out.
- RBNZ: consensus is for no change in rates and the start of a funding for lending program that could amount to half of the size of the existing NZ$100 billion asset purchase program. Further guidance on negative rates is also expected.
Data in the Week Ahead:
- ECB’s Lagarde Speech (Mon)
- BOE ‘s Bailey Speech (Mon)
- UK employment change (Tue) à PMIs would suggest a downward surprise.
- GER ZEW (Tue)
- RBNZ Decision (Wed)
- UK GDP (Thur) à Weakness is expected.
- US CPI ( Thur)
- BOE’s Bailey Speech (Thur)
- FOMC’s Powell Speech (Thur)
- BOE’s Bailey Speech (Fri)
Correlation Report:
Comment: The main correlation patterns suggest the main drivers are the moves in USD and equity markets.
On the Radar:
As of Friday’s close, the main signals were USD weakness and strength in equity markets. That’s where continuation signals are likely to be this week. At the same time, the Euro may remain soft on the crosses as lockdowns continue in Europe, so EurAud and EurNzd (biased to the downside) are also included in the list.