Market Commentary & Outlook
The prospects of a relief package being passed before the election seemed to dim further, while coronavirus worries also seemed to dampen sentiment during much of the week. US President Trump said on Thursday he would agree to go higher than the $1.8tn that the White House has offered in coronavirus stimulus funding to strike a deal with the House Democrats, who are seeking $2.2tn. Trump said that is a chance of a getting a stimulus before the elections, though hopes for a deal have dimmed. Additionally, investors were worried by the continued rise in cases in the U.S. and Europe, amid pauses in trials of both J&J’s vaccine and Eli Lilly’s antibody treatment due to potential adverse reactions.
Last week’s economic data were mixed. Core retail sales rose 1.4% in September, reversing a downwardly revised 0.3% drop in August. The University of Michigan’s preliminary gauge of October consumer sentiment also surprised on the upside. However, weekly jobless claims disappointed, rising to 898,000, a two-month high. Also, manufacturing production unexpectedly dropped 0.3% in September, suggesting that manufacturing’s recovery from the Covid-19 pandemic was slowing heading into Q4. U.S. consumer prices rose for a fourth straight month in September though the pace has slowed. CPI increased 0.2% last month after gaining 0.4% in August. Coronavirus spending pushed US fiscal year deficit to record $3.132tn. more than triple the 2019 shortfall.
In Europe, central governments imposed stricter measures to contain the accelerating spread of the coronavirus and prevent a second round of economically damaging national lockdowns. France imposed a night-time curfew in Paris and eight other cities, while the UK implemented a three-tiered system of localized lockdowns across England. PM Boris Johnson said UK should get ready for a no-deal exit from the EU on December 31, in response to Brussels’ demands for more unilateral concessions. However, Johnson kept the door open for more talks, saying he would listen to proposals based on a “fundamental change of approach.”
On the week ahead, election fever is heating up, with Joe Biden, maintaining his strong lead over Donald Trump in the latest national polls. The opinion polls will be watched more closely in the run up to the November 3 vote as it is looking increasingly likely that the outcome of the fiscal stimulus bill is tied to the outcome of the election. The flash PMI reports in US, Eurozone, and UK are due on Friday. In Europe, manufacturing PMI is expected to follow the services PMI in edging lower in October. US will also release building permits, housing starts, and existing home sales.
In China, exports last month topped market forecasts and increased for the fourth straight month, jumping 9.9% y/y in U.S. dollar terms. Imports, which have so far lagged exports in the recovery, soared in September, offering evidence of a pickup in domestic demand. IMF raised its full-year GDP forecast or China to 1.9%, up from its June forecast of 1.0%, in its October World Economic Outlook. China’s economic output is projected to have expanded by 3.2% in Q3, taking the y/y rate to 5.2%
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