Autumn storms ahead

Good Morning, as the world’s markets waited all last week for the release of the Non-Farm payrolls data only for more serious news to partly side-line the event with the announcement that President Trump and his wife Melania had tested positive for COVID-19.

The markets knee jerk reaction was a flight to safety which benefitted the dollar, yen and to a lesser extent the euro.

The health of the President and its effect on the forthcoming election, now under 30 days away, will certainly dominate the headlines and the markets over the next week and for some time after. The markets will also remain fretful that other members of his administration could fall victim to the virus, especially Vice-President Mike Pence.

When the employment numbers were released and digested, they were somewhat underwhelming and served to underline that the recovery in the US is stalling and the need for a fiscal stimulus package to be delivered sooner rather than later. Unfortunately, the combination of the President’s illness and the forthcoming election makes the agreement of a stimulus package further away than ever. Looking ahead to Thursday the markets will focus on increased interest on the Vice-Presidential debates. The market is likely to continue to be volatile and with China on holiday all week, volumes will be thinner which in turn will exaggerate moves. Closer to home it will continue to be all about Brexit. After Boris Johnson’s Saturday call with Ursula von der Leyen, they both said that significant differences still exist and that both sides need to intensify efforts to find solutions. As the Brexit clock ticks ever louder the efforts of both sides to find a solution will dominate domestic news.

UK

Sterling had a good week making gains over the dollar to close above $1.2900 and on the euro where it settled €1.1000. So far sterling has stayed immune to the recent outbreaks of COVID-19 and traders’ attention has instead been concentrated on the chances of a Brexit trade deal. The coming week will be dominated by Brexit and after Saturday’s call between the leaders yielded little movement sellers may reappear.  Also as a beta currency sterling is vulnerable to the buffeting caused by changes in risk assessment.  The data docket looks a little bare in the week ahead with only August’s Gross Domestic Product and Manufacturing production being released on Friday.

Euro

With COVID-19 infections creeping up, the lack of agreement on the recovery fund is starting to concern traders and will continue to do so unless these concerns are addressed. However, these worries were side-lined as the euro benefitted from its safe-haven status as a risk-off mood returned to the markets and with President Trump in hospital this is set to continue. Retail sales are released later this morning and after these figures the economic calendar is light but there is a European Finance ministers meeting on Tuesday and a selection of speakers from the ECB during the week including Christine Lagarde twice on Wednesday. The drop in inflation may be starting to worry the ECB and the release of the minutes of their early September meeting may give a clue to how they are thinking about further stimulus.

US

The focus, of course, will be on the President’s health in the coming week and the shifts in risk sentiment associated with it. There was a rise in the Vix index last week, often known as the fear index, and the market was already bracing itself for heightened volatility ahead of the announcement of Donald Trump’s illness.  After the disappointment of the jobs report last Friday the market will turn its attention back to Fed this week with Fed Chairman Jerome Powell delivering a speech on Tuesday and the release of September’s FOMC meeting notes on Wednesday. Very little else of any importance is released apart from ISM services data today and the weekly employment figures on Thursday.

Scandi

Last week it was confirmed what many had feared: Swedes spent and shopped less which meant that retail sales contracted by 0.3% on a month-by-month basis. However, there was some light seen at the end of the tunnel when PMI Manufacturing data which came in showing that manufacturing activity had expanded. The krona remains rangebound and still cannot return to the levels it traded at during the summer against all major crosses. This week we are watching the industrial orders, the budget balance, and Swedish Housing Price Data. Any further mention of lockdowns will naturally grab our and the market’s attention. The Norwegian krone is still under pressure and this week the market will be watching out for the GDP figure and the latest inflation figures released on Friday which are expected to be well above most other major economies at 2%.

ROW
The Reserve Bank of Australia meets this week and more dovish rhetoric is expected, but this is likely to pale into insignificance when seen in the light of the likely shifts in global risk sentiment. Its near-neighbour the kiwi is also a hostage to global risk movements although it does have its own election looming on 17th October. The main beneficiary of uncertainty over both the US election and President Trump’s illness will most likely be the Japanese yen which looks set to strengthen whilst the Canadian dollar could suffer if its payroll number, released on Friday, is worse than anticipated and oil continues to weaken.

Question
What is the FOMC?
The Federal Open Market Committee (FOMC) consists of twelve members – the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. By law, the Federal Reserve conducts monetary policy to achieve its macroeconomic objectives of maximum employment and stable prices. FOMC announcements inform the world about the US Federal Reserve’s decision on interest rates and are one of the most anticipated events on the economic calendar as are the detailed minutes of the meetings which are released about two weeks after.