The status of President Donald Trump’s health has been anything but clear since he tested positive with COVID-19 on Friday last week. It has been important for markets, though, and his discharge from hospital on Monday boosted global equities. His positive test caused an immediate plunge in his chances of winning the upcoming presidential election, according to prediction polls, which has put pressure on him to get back in the race.

The prospect of further US stimulus has been a key market driver since then. First, risk sentiment soured, after President Trump ended stimulus talks only hours after Fed Chairman Jerome Powell renewed his warning that the economy will stumble without additional fiscal support. Then global equities rebounded as Trump urged Congress to pass piecemeal aid packages for targeted industries, small businesses and consumers. The FOMC Minutes also made it clear that the Fed really wants Congress to do its fair share of supporting the economy, as the Fed (without stating it) fears it is running out of ammunition. The rebound in equities was further supported by new polls that show Joe Biden has a firm lead against Trump ahead of the November elections. Investors expect a Biden win to make the passage of a new stimulus bill more likely.

On the COVID-19 front, the number of new cases is increasing in Europe but in some of the hard-hit countries the increases are more ‘linear’ than ‘exponential’, suggesting the reproduction number (the so-called R) is declining, although still above 1. Most European countries have imposed ‘local lockdown light’ in the worst hit regions.

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In Europe, service PMIs showed a mixed picture in September and there are clear links between the domestic virus situation and service activity. Italy and Germany sustained a positive momentum, while Spain and France saw headwinds (see also Euro Area Monitor – Autumn blues, 5 October).

The German manufacturing sector gave mixed signals this week. Factory orders continued its uptrend, down only 2.2% y/y in August, while industrial production declined slightly. The strong Chinese rebound has been the wind behind the German comeback, as China is seeing a solid rebound in its economy, with the coronavirus almost absent domestically (see more in our China Macro Monitor – A bright spot in the global economy, 5 October). This bodes well for a continued German recovery in the autumn. Next week, the German ZEW figures will mark the first glimpse of October data and how much the second waves of the virus have hit sentiment.

While the Nordic countries have been less hurt economically than many other countries, there are renewed headwinds. Localised restrictions on the back of increasing infections are likely to dampen the recovery and we are concerned that exporters might not yet have seen the full effect of the substantial fall in income elsewhere. We published our view on the Nordic economies this week in Nordic Outlook – October 2020, 6 October. In Denmark, we see signs that spending has been lifted by the payout of holiday back-pay, which was initiated late last week. This should boost the economic recovery at a critical stage when spending is struggling with restrictions in the wake of spiking COVID-19 infections (see more in Spending Monitor, 6 October).

Full report in PDF.

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