Hussein Sayed,
Chief Market Strategist at FXTM
Equity
markets in Asia kicked off the week on a positive note along with US futures,
as investors digested China’s GDP data and some optimism that US policy markets
may still reach an agreement on a stimulus package before Election Day. The
dollar was little changed against its major peers, gold traded slightly higher
and crude oil fluctuated ahead of today’s OPEC+ Joint Ministerial Meeting.
China’s Q3 missed
expectations
China’s
GDP grew 4.9% in Q3 compared to last year, coming up short of market
expectations for 5.2% growth. Despite the miss, China remains the only major
economy to post growth for the first nine months of 2020. Other indicators are
also pointing towards a broader recovery which could be reflected in GDP for
the final quarter of the year, if sustained. Fixed asset investments turned
positive for the year, increasing 0.8% in the first nine months of 2020. Retail
sales rose 3.3% year-on-year in September in a clear indication that consumers
are confident enough to open their wallets again. Finally, also released today
was the industrial output figure which was another bright spot, growing 6.9% in
September, the fastest since December 2019. This should make China more
appealing to investors as fundamentals are catching up with stock market
performance, while most major economies still have a tough road ahead towards
full recovery.
Stimulus Hope
Market
participants are fed up with US politicians as the deadline for coronavirus
relief continues to be pushed further out, with House Speaker, Nancy Pelosi, setting this Tuesday as
the latest line in the sand. A stimulus package is certainly required at the
moment with US infections topping 50,000 for a fifth straight day while
millions of Americans need aid with rising economic stress. Given recent
history, it’s hard to say whether a bill will be approved or not, however the
earlier the bill is signed the better it is for households, the economy and
equity markets. The slight rise in US Treasury yields and futures are signs of
optimism that a deal could be reached before 3 November, but chances of
disappointment remain high.
Prepare for a no Brexit deal
The
pound moved sharply lower on Friday after British Prime Minister, Boris Johnson, announced that it’s time
to prepare for no trade deal. GBPUSD declined almost 100 pips in a matter of
less than a minute after Johnson’s announcement. However, the currency managed
to pare the losses throughout the day and closed where it started. Many traders
might have been shocked by the Pound’s reaction, especially those who are not
used to Johnson’s Brexit statements. Currency markets are simply saying do not
believe what he says, as it could be just another tactic he’s using to get some
concessions from the EU.
A no
Brexit deal means that the Bank of England would take interest rates into
negative territory and 10-year yields would drop below zero (they are currently
18 basis points above zero). That’s clearly not priced into Sterling. Markets
still believe the base case scenario is a last-minute deal which could send
GBPUSD towards 1.35. However, if they are wrong, get ready for a 1,000pip
drop.
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