This week has been quiet in terms of data releases, so focus has been on COVID-19, Brexit and the upcoming US election.

European politicians have tightened restrictions, as new COVID-19 cases in Europe are accelerating and hospitalisations are increasing. The number of new cases has now accelerated in Germany and Italy too, while France and the UK continue to be hit hard. On a more positive note, Spain seems to be stabilising. In the Nordic region, new cases and hospitalisations have peaked in Denmark, while the number of new cases in Sweden is back to the level seen in May. Even if things start to improve, we may not see looser restrictions, as politicians may fear a third wave, as people spend more time indoors over autumn and winter. We know that the virus spreads much faster indoors than outdoors. In contrast, discussions on locking down for a few weeks may intensify if the number of new cases does not come down over coming month. In addition, it is interesting that YouGov’s fear of catching COVID-19 index has moved sideways or even increased for some countries since June. This week, Johnson & Johnson was forced to put its vaccine trial on hold due to safety concerns, another indication that a vaccine may not be ready around year-end. For more details, see COVID-19 Update – Acceleration in new cases in Europe, 15 October.

That the virus is still not under control in the US, where the number of new cases at a national level is increasing again, seems to be benefitting Joe Biden. Joe Biden is leading in the polls, also in many important swing states. Americans disapprove of Donald Trump’s handling of the COVID-19 pandemic. For more details, see US Election Monitor – COVID being fresh in memory seems to be benefitting Biden, 16 October.

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On Brexit, the EU council has decided to issue a statement saying that negotiations should continue in coming weeks but that it is the UK that should move closer to the EU’s position. The EU’s chief negotiator Michel Barnier was more ‘bullish’ saying that the EU is ready to negotiate until the last possible day and is ready to speed up negotiations in the next few days. We do not know how the UK is responding yet but the UK’s chief negotiator said he was ‘disappointed’ about the EU council’s statement. If Prime Minister Boris Johnson takes a hard stance, we believe this should simply be considered as playing to the gallery and continue to believe a deal is more likely than not and we expect negotiations to extend into November.

Looking ahead to next week, the highlight of the week is the release of flash PMIs for Japan, the euro area (including Germany and France), the UK and the US. The euro area service index disappointed in September, as the index fell below the 50 threshold again, indicating a decline in service activity. The uncertainty is whether October will look any better, with COVID-19 restrictions tightening further since the September report, as new cases have accelerated in several European countries. We expect the US indices to remain above 50.

Besides this some Fed and ECB speeches are scheduled for next week, including ECB President Lagarde. We do not expect any new signals from either the Fed or the ECB. We also intend to continue following US negotiations on a new relief package, with our base case that there will not be a deal this side of the election.

Full report in PDF.

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