The word “Hopeful” has been thrown around a lot over the last week. Brexit negotiators are hopeful a trade deal will get done. US officials working on the fiscal stimulus package are hopeful a deal can be reached before the election. Markets are done with talk and want to see action! As a result, many markets remained in tight ranges over the last week. The ongoing sagas will continue. US Presidential posturing comes down to the wire this week, with just over 1 week remaining until the election. Coronavirus cases continue to rise around the world, as the BOJ, BOC, and ECB meet to discuss if more stimulus is needed. As earnings season rolls on, 4 of the FAANGs are set to report on Thursday. And in economic data, traders will also get the first look at Q3 GDP.
Brexit negotiations seem to be moving in the right direction. After Boris Johnson walked away from talks last weekend, EU negotiators stepped forward and said that a deal can be reached if both sides compromise. This was a powerful statement, as it signaled a move on the part of the EU to compromise. Negotiations are set to continue, and officials are “hopeful” a deal can be reached by mid-November. In addition, reports Friday suggest the EU officials are leaning on French PM Macron to ease up on his tough stance regarding fisheries. As longs as talks continue, markets should be happy. If talks end with a no-deal Brexit, GBP will suffer. Given the mid-November deadline, markets may be indiscriminate about near-term comments.
In the US, the long-awaited fiscal stimulus deal is at an impasse. Both sides say that they are close, but at the same time, they say significant differences remain. Both sides are also “hopeful” a deal will be reached. White House Chief of Staff Meadows said as late as Friday afternoon that: “We “hope” to get a covid-19 deal in a day or so”. The White House is offering a $1.9 Trillion package, while the House Democrats are looking for a $2.2 trillion package. A main sticking point seems to be federal aid to the states. However, even if a deal is reaching between Treasury Secretary Mnuchin and House of Representatives leader Nancy Pelosi, it still must be voted on by the Republican led Senate. The Senate was looking for a deal in the area of $600 billion. Senate leader Mitch McConnell did say though that he would bring any deal to the senate floor for a vote. Stay tuned!
There is also a Presidential Election next week in the US! Republican candidate President Donald Trump is facing former Democratic Vice-President Joe Biden on November 3rd. Watch for all the punches to come out this week between these two. However, also note that due to the coronavirus, many states are allowing early voting and vote by mail. Nearly 30% of people who voted in 2016 have already voted for the current election. Many people seem to have their minds made up already.
The number of new coronavirus cases continues to increase at rates not seen since the pandemic first hit in February and March. As of Friday, the WHO reported that over 80 nations are facing a rise in infections. As has been discussed for the last few weeks, this is leading to increased localized shutdowns and curfews. Central Banks around the globe are trying to do more. This week, the Bank of Canada, Bank of Japan, and the European Central Bank all meet to discuss individual monetary policies. The ECB is expected to be on hold until staff projections in December, however the PMIs out of Europe on Friday won’t help them to remain idle. The increase in cases has affected the manufacturing and service sectors of many European countries, except for manufacturing in Germany, which will put pressure on committee members to act.
This week markets will see earnings releases from some of the large market cap companies. Of note, are the release of 4 of the 5 FAANG stocks on Thursday, which includes FB, AMZN, AAPL, and GOOGL. Other earnings highlights this week are as follows: HSBC, BP, LMT, PG, GSK, TXN, MMM, AMD, BT, RDSA, MRK, STAN, CAT, MSFT, PFE, AMGN, BA, F, MA, V, LLOY, TWTR, BABA, GLEN, XOM, and NWBD.
As central banks buy more and more bonds to keep rates at or near zero, it seems that some economic data is becoming less and less of a factor in trading decisions. Markets don’t seem to “pop” or “drop” immediately after data, as they did when rates were higher. Still, China’s data is at or near pre-pandemic levels while the rest of the world struggles. The PMIs released on Friday caused a bit of a stir as most of them were weaker. This week, in addition to the central bank meetings, many countries will release Q3 GDP. This may be a market mover if the data is weaker than expected, as many are expecting a pullback for Q4. Other economic data this week is as follows:
- Germany: Ifo Business Climate (OCT)
- US: New Home Sales (SEP)
- New Zealand: Trade Balance (SEP)
- US: Durable Goods (SEP)
- US: CB Consumer Confidence (OCT)
- Australia: Inflation Rate (Q3)
- Canada: BoC Interest Rate Decision
- Crude Inventories
- Japan: Retail Sales (SEP)
- New Zealand: ANZ Business Confidence Final (OCT)
- Japan: BoJ Interest Rate Decision
- Japan: BoJ Quarterly Outlook Report
- Japan: Consumer Confidence (OCT)
- Germany: Unemployment Change (OCT)
- UK: BoE Consumer Credit (SEP)
- EU: Consumer Confidence Final (OCT)
- US: GDP Growth Rate QoQ Adv (Q3)
- US: Initial Claims (Week Ending October 24th)
- US: PCE Prices Adv QoQ Adv (Q3)
- EU: ECB Interest Rate Decision
- Germany: Inflation Rate Prel (OCT)
- US: Pending Home Sales (SEP)
- ANZ Roy Morgan Consumer Confidence (OCT)
- Japan: Unemployment Rate (SEP)
- Japan: Industrial Production (SEP)
- Australia: PPI (Q3)
- Germany: GDP Growth Rate QoQ Flash (Q3)
- Germany: Retail Sales (SEP)
- Germany: Import Prices (SEP)
- EU: GDP Growth Rate QoQ Flash (Q3)
- EU: Inflation Rate (OCT)
- EU: Unemployment Rate (SEP)
- Canada: GDP (AUG)
- Canada: PPI (SEP)
- US: Personal Income (SEP)
- US: Personal Spending (SEP)
Chart of the Week: 240 Minute USD/JPY
Source: Tradingview, FOREX.com
USD/JPY has been trading in a descending wedge since the March 24th highs of 111.71 (red lines). However, recently the pair has been trading well within the wedge. On October 20th, USD/JPY put in a near-term high at 105.75. On October 21st, price has pulled back to near 104.30 and the RSI became oversold. Since then, the pair has been consolidating in a pennant formation as the RSI unwinds back into neutral territory. If this is truly a pennant, price should break lower and the target will be near 103.50, which is also near the bottom trendline of the long-term descending wedge. First support is the recent lows near 104.30. Below there, price must break through the lows from September 21st near 104 (bottom green line) if it is to achieve the pennant target. If price breaks higher out of the pennant, the formation is negated. First resistance is Friday’s highs near 104.93. Above there is strong horizontal resistance just about 105 (top green line).
This week watch for a US fiscal stimulus deal to get done. Brexit negotiations may continue longer given that the new deadline mentioned is mid-November. However, the more “hopeful” negotiator’s comments are that deals will be done, the less the markets will care. In addition, keep an eye on increases in coronavirus cases, earnings, and Q3 GDP to give the markets direction.
As a reminder, the UK/Europe turn clocks back 1 hour this weekend. The US doesn’t move clocks until next weekend!
Have a great weekend and please remember to always wash your hands!