Chief Market Strategist at FXTM
Equity markets in Asia
along with European and US futures edged slightly higher early Monday as
investors grapple with many variables that could bring increasing amounts of
volatility in the week ahead. The
Dollar gave up some gains but is still hovering near a two-month high, as rises
in Covid-19 cases and political uncertainty held back investors from selling
the Greenback. Meanwhile, fears of weak demand kept Oil prices under pressure
and on track for a first fall in several months.
First US
Presidential TV Debate
The
war of words between President Donald Trump and Democratic challenger Joe Biden
will finally move to a television stage on Tuesday. Biden continues to lead in
national polls and several swing states, so the first Presidential debate will
either see the contender widen his lead or Trump will close the gap.
Markets
overall still prefer a Trump second term, given that corporate tax cuts will
remain in place if not reduced further, but a Biden win would most likely
translate into an increase in tax for corporates and high net worth
individuals. In addition to higher taxes, a Democratic sweep where Democrats
continue to hold the House and take over the Senate would suggest increased
regulations on the energy and banking sectors, along with more decisive policy
actions on competition, antitrust and cybersecurity. However, a Biden win is
expected to restore US relations with the rest of the world, especially its key
trading partners like China and Europe, so that would be an initial positive
outcome for global shares outside the US.
Overall,
expect stocks to remain choppy as we approach November 3, and possibly well
beyond that date if Trump decides not to commit to a peaceful transfer of power
if we get a Biden win.
US jobs
So
far, the US economy has recovered little less than half of the jobs lost due to
the pandemic and it’s going to be a very long time before there is a return to
full employment. While the economy has been healing over the past several
months, the pace of the recovery is showing signs of slowing.
Friday’s non-farm payrolls
report will likely confirm the slowing pace of the economic recovery. Markets
expect 875 thousand jobs have been added in September, down from 1.4 million in
August, and well below the 4.8 million jobs added in June. A further slowdown
in the recovery should push the Democrats and Republicans towards finalising a
new stimulus relief package, but the two parties still seem far apart.
Brexit talks
return to the headlines
Trade
talks between the UK and EU enter their final stage this week. Both sides want
to avoid a no-deal Brexit especially as the European economy continues to
suffer from rising Covid-19 cases. There seems to have been some concessions
made over the past several days, but most important is how these concessions
translate into the final round of talks.
The
Pound will see a spike higher if we get closer to an agreement and they enter
“the tunnel” in which the details of the deal will be drafted in secrecy over
two weeks. There seems to be some positivity as we enter the final round, but
traders need to be prepared for any outcome.
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