Key Points From This Week
Fresh Lockdowns in Europe
In response to soaring numbers of new infections and rising death tolls across many nations in the eurozone, we have seen governments announcing new measures this week. Spain has been placed under a fresh national state of emergency while France and Germany have both announced new one-month lockdowns. In the UK, pressure is growing on the government to announce a new nationwide lockdown as the virus continues to spread at an exponential rate.
Trump Improves in Polls
Less than one week to go to the US presidential elections (November 3rd), the president has seen a slight uptick in his polling results. While Biden is still ahead, polls have narrowed somewhat and notably, Trump is now doing better in the swing states with Texas and Florida having both switched in the president’s favour over the last week. Given Trump’s unexpected win in 2016, another Trump win cannot be ruled out at this stage.
ECB More Dovish Than Expected
At the ECB’s October rates meeting this week, the central bank struck a concerned, dovish tone. Markets were firmly expecting the bank to reaffirm its earlier guidance, signalling easing to come in December. However, the bank appeared to surpass these expectations by advising markets that it would consider all options when recalibrating its policy in December. The market has taken this as increasing the likelihood of a further rate cut along with additional QE.
Key Events Next Week
RBA November Meeting
At the RBA meeting next week, the market is widely expecting the bank to announce further easing. In light of the fresh uptick in global COVID cases and the impact this will have on Australia’s key trading partners and demand for Australian exports, the market is looking for the bank to cut rates to as low as 0.10%. The move might also be accompanied by some adjustments to the bank’s QE operations, such an extension of the timeframe or an increase in the scale of the operation.
BOE November Meeting
Expectations are split heading into the November BOE meeting. With the central bank having recently asked regional banks about that preparedness for negative rates, the market had been anticipating December easing (given the November 12th deadline for that survey). However, in light of the dramatic uptick in COVID cases which has seen around 16 regions in the UK now plunged back into lockdown, the downside risks are growing and the BOE might opt to act earlier than expected at this point.
Given that US data has remained broadly positive, the Fed is not expected to ease further at this point. The proximity of this meeting to the US elections, which might still not have been decided at that point given the large number of mail -n ballots this year, means that the Fed is likely to remain on hold. However, traders are expecting further dovish signalling from the Fed.
US Labour Reports
The least NFP release undershot expectations slightly and showed that momentum has slowed drastically in the US labour market. This theme is likely to be seen again over the last month and will no doubt increase the pressure on the Fed.
Keep An Eye On
UK Lockdown Headlines
There is growing speculation that the UK PM will be forced to announce a further nationwide lockdown if infections and deaths continue to rise at the current pace. Such a move would be a big blow for UK assets and risk appetite generally
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