Duncan Donald

Fri, Oct 23

Markets subdued amid broadly expected US company earning season and US election and Brexit

This week has been, dare I say it, relatively boring in the markets. We look to be closing the week in or around where we exited last week. This comes after a relatively negative open on Monday as Covid-19 cases across Europe and the UK continued to surge, it felt for what transpired to be just a few hours that the markets were going to focus attention back towards potential implications of a significant second wave of infection.  But, whilst through the week we have continued to see cases grow and lockdowns and curfews increase particularly in France, Spain and the UK the markets attention still sits with the US election and Brexit.


It has been another week of kicking the can both stateside and in the UK. In the US the much-needed stimulus plan remains deadlocked with House Speaker Nancy Pelosi’s 48-hour deadline to find agreement with Republican cohorts passed and ultimately ignored. Despite the “deadline” talks remain ongoing, with both parties seemingly content just to make the noises of effort whilst perhaps content to just let the clock tick down to the election to the detriment of those sorely in need of the actual benefits the stimulus should deliver for. Last night saw the last leadership head to head between Presidential candidates Trump and Biden. The event was more civilised than previous with Biden not getting dragged into the typical Trump performance.


With limited impact on the polls following the debate and reasonably solid performance from US earnings season supporting, but not enhancing US Stocks all eyes will be on the tech giants who start to report earnings next week.  As we have already seen so far the bar is set high for US companies and underperformance of the key tech players could be the straw that breaks the camel's back as we move towards the election and perhaps start to see market participants start to de-risk into the event. With Biden in the lead focus shifts to the scope of the blue Democrat wave across the house and senate, IF domination is achieved this will likely herald the best outcome for the stock market, the closer the vote and the more responsibility is shared between the parties the more road blocs there will be in future policy agreement as is being currently exemplified with the stimulus plan.


In the UK, Prime Minister Boris Johnson has had a rough week domestically as his cabinet's performance in assisting areas of the country most affected by the virus has left a lot to be desired. It begged the question, if he can't negotiate deals domestically how can it be expected with the EU and Brexit. The Pound enjoyed a good week as between Tuesday and Wednesday it transpired that UK and EU negotiators were again focussed on trying to get a deal. The EU tem travels to London to again attempt what has proven impossible to date. For now the currency is solidifying its position above 1.3000, peaking at weekly highs of 1.3175 against the US Dollar.  There remains concerns a resolution can be found with all negotiating parties fighting virus flares, but for now optimism prevails. 


The Week Ahead:


Monday - German IFO is the only significant data of the morning. In the US session we get New Home Sales and Trade Balance from New Zealand late in the day. 


Tuesday - Japanese Core CPI comes first before Housing data from the UK. Spanish Unemployment is next up as well as Eurozone Money Supply and UK CBI Realised Sales. From the US we get Core and Non-Core Durable Goods and Consumer Confidence and Richmond Manufacturing Index. 


Wednesday - The main data of the morning is Australian CPI Inflation data before German Import Prices. US Trade Balance and Wholesale Inventories comes before the Bank of Canada’s Monetary Policy Report, Statement and Press Conference. 


Thursday - The Bank of Japan delivers the Interest Rate Decision early in the session. In Europe we get German and Spanish CPI Inflation numbers as well as UK Borrowing data. In the US session we get significant data with GDP and Unemployment Claims before Christine Lagarde's ECB rate decision and Press Conference.


Friday - Japanese Unemployment, Core CPI, PPI and Housing Starts come first. From Europe we get French Consumer Spending and GDP. German Retail Sales and GDP are next up before Eurozone CPI and Unemployment Rate numbers and Italian GDP. In the afternoon session we get GDP from Canada and US PCE and Personal Spending and Chicago PMI and UoM Consumer Sentiment.