Surprisingly, not a lot has changed over the last week in terms of headline events! Brexit “talks” seem to be happening this week, though Boris Johnson made sobering comments that the UK should get ready for a no-deal Brexit. However, that may be the least of the UK’s and Europe’s problems as the number of coronavirus cases continue to rise. A US fiscal stimulus bill will continue to be negotiated (or maybe not, depending on who you ask). Thursday, October 22nd will be the second and final US Presidential Debate before the general elections on November 3rd. A tease of earnings continues this week, before the heavyweights kick in next week. In addition, we see the first important global data for October on Friday with the release of global manufacturing and services PMIs.
After an ambiguous EU summit last week, both sides have declared there has not be much movement on the Brexit negotiations. After passing Boris Johnson’s deadline of October 15th, in which substantial progress needed to be made in order to continue talks, the Prime Minister said there is no need to continue negotiations and that the UK should prepare for “no deal” Brexit. However, while cancelling the negotiations scheduled for Monday, the two sides agreed to talk again next week. As the early headlines rolled out on Friday, the Pound was volatile. However, by the end of the day, fx markets appeared to be numb to the headlines and are now waiting for action. At the heart of the holdup is Germany’s and France’s insistence that fishing must not be “sacrificed” to Brexit (French PM Macron’s words). Most of Europe’s fishing industry comes from the disputed waters. Watch the GBP intently next week as continued headlines may cause additional volatility in the currency.
But the Brexit negotiations may play second fiddle this week to the increasing daily headlines regarding the coronavirus cases across the UK and mainland Europe. In the UK, Manchester is moving to the highest Tier for the virus level and London is moving to Tier 2, which includes no household mixing. However, Boris Johnson has said there is no need for another national shutdown. France, the UK, Germany, Italy, Portugal, and the Netherlands all hit daily record-high cases last week, forcing more locked down areas, curfews, restaurant and bar closings, and even mask requirements outside in some areas. And the US is not immune to the increase in coronavirus cases. New cases are rising in 44 states and deaths per day are rising in 30 states. US confirmed cases rose about 8 million according to John Hopkins University. With the Thanksgiving holiday in the US a little more than a month away, the US government’s top infectious-disease expert, Dr Fauci, said Americans should think twice about gathering for the holiday. The equity markets seem immune at the moment, but if the numbers continue to increase at this year, it will eventually flow through to the hard economic data.
The issue of dealing with the coronavirus is sure to come up in the second and final debate between Republican President Donald Trump and Democratic Nominee Joe Biden. The previous debate was cancelled after President Trump tested positive for the coronavirus and refused to hold the debate virtually. Many states have allowed or mandated that ballots be cast by mail this year, so that voters could protect themselves from potentially contracting the coronavirus. Early voting has also been allowed this year in some states, in order to spread out the timing of voting. Therefore, many people have already voted for the election on November 3rd and this debate may only swing the decision of a few. If it is anything like the first debate, it is sure to make for good conversation around the monitors on Friday morning’s work zoom meetings.
In addition, the US fiscal stimulus appears to be all but dead for now, at least until after the election. President Trump wants a $1.8 trillion deal, the Senate is looking for $600 billion, and the house wants a $2.2 trillion deal. However, with the elections coming up quickly, Democrats are holding out for a Joe Biden victory and control of the House and Senate. If that’s the case, a deal should happen by February, after the election winners are sworn in. Regardless of timing, investors are assuming a deal will get done.
The beginning of earning season continues this week. For the banks, last week showed that the winners were the investment banks and the losers were the retail banks. This week, we get a look at our first mega-cap companies as well as a few tech firms. Notable companies reporting this week: IBM, HAL, SNAP, PM, LMT, PG, NFLX, TXN, TSLA, KO, AMZN, INTC, AXP, BCS
Over the last two weeks, global data appears to have leveled off or even decreased after its bounce from the near worldwide shutdown in the spring. Over the last 2 weeks, central bank after central bank has marched their committee members out and they are all singing the same song, which is: more to come if necessary. The RBA has hinted as buying longer term bonds. Although they continue to say they won’t use it, the BOE has told banks to have their infrastructure ready “just in case” they need to use rates negative. And the ECB and Fed stand ready to do more. This week, with a light economic calendar, committee members are out in force once again. Below is the list of major speeches to keep an eye on, as well as key economic data. The economic highlight this week is the global manufacturing and services PMIs on Friday, which will be our first look at important October data:
Saturday
- New Zealand: General Elections
Sunday
- ECB President Lagarde Speech
- BOE Gov Bailey Speech
Monday
- New Zealand: Services NZ PSI (SEP)
- Japan: Trade Balance
- Australia: RBA Meeting Minutes
- China: GDP Growth Rate QoQ (Q3)
- China: Industrial Production (SEP)
- China: Retail Sales (SEP)
- China: Unemployment Rate (SEP)
- Fed Chair Powell Speech
- Bundesbank Weidman Speech
- EU: Construction Output (AUG)
Tuesday
- Germany: PPI (SEP)
- US: Building Permits (SEP)
- US: Housing Starts (SEP)
Wednesday
- UK: Inflation Data (SEP)
- ECB President Lagarde Speech
- Canada: Inflation Rate (SEP)
- Canada: Retail Sales (AUG)
- Canada: New Housing Price Index (SEP)
- Crude Inventories
- US: Fed Beige Book
Thursday
- RBA Debelle Speech
- Germany: GfK Consumer Confidence (NOV)
- Turkey: TCMB Interest Rate Decision
- BOE Gov Bailey Speech
- US: Initial Claims (week ending Oct 17th)
- EU: Consumer Confidence Flash (OCT)
- US: Existing Home Sales (SEP)
Friday
- Global Manufacturing and Service PMIs Flash (OCT)
- New Zealand: Inflation Rate QoQ (Q3)
- New Zealand: Trade Balance (SEP)
- UK: Retail Sales (SEP)
Chart of the Week: Daily USD/TRY
Source: Tradingview, FOREX.com
Is the USD/TRY ready to pullback? On a daily timeframe, the move from March 3rd to May 7th (which at the time was all-time new highs) is almost the same as the move from August 5th to this week’s highs, in both time and price. This is an AB=CD pattern. In addition, price has broken lower from an ascending wedge near 7.9554. The target for the breakdown from an ascending wedge is a 100% retracement from the wedge, which is near 7.508. Also, there is a divergence between price and the RSI, as the RSI tries to pullback into neutral territory while price tries to move higher. (Not to mention that there is a TCMB Interest Rate Decision meeting this week. Expectations are for unchanged, however they surprised on the upside by 200 bps at the last meeting!). Resistance is at the broken trendline near 7.9554, then the all-time high at 7.9574. The target is for the AB=CD is still in play, which is near 8.1000. First support is the high from October 8th near 7.802, then the low of the ascending wedge at 7.508.
The highlights of this week should be the same as those from last week: Brexit negotiations (“talks”) headlines, increase in coronavirus cases, and any word of a US fiscal stimulus plan. The US elections are nearly 2 weeks away. Also watch for potential tape bombs from the two candidates. In addition, watch for potential earnings surprises!!
Have a great week and please remember to always wash your hands!
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