US equity indexes were down on the week: DJIA -6.5%, S&P 500 -5.6% and NASDAQ -5.5%.
The losses were driven by US election uncertainty, rising COVID-19 cases in the US and Europe and the new lockdown measures being taken there to try to control the virus’s spread. The US has hit another unfortunate record for daily new COVID-19 cases. The chart below shows the fresh peak at approximately 100,000 cases per day. The case rise currently is being driven by the midwest (more below in the coronavirus update section).
Turning to central banks, ECB policy was unchanged this week, but the press release and press conference confirmed a package of measures will be announced at their final meeting of the year on December 10th. Senior Advisor Chris Marsh notes, “This was a strong performance by Lagarde in delivering a clear message; EUR drifted lower throughout the day and peripheral yields compressed a small amount, a sharp contrast to early-March. Perhaps most important was Lagarde’s reference to the ‘increase in contagion’ of the virus playing a role in their deliberations, consistent with Macron’s announcement the prior evening and the Financial Times story.”
While the package of measures likely announced in December was only hinted at, a PEPP expansion is highly likely, but Lagarde confirmed they are looking at all instruments. Chris says, “Reference to an ‘increase duration, volume and attractiveness’ of their tools strongly hints at revision to the TLTRO terms as part of the package—a further reduction in yields and lengthening of availability of such repos. A further deposit rate cut seems unlikely, too damaging to core banks, though they might consider it alongside tiering adjustment. In the meantime, Lagarde suggested they will use the flexibility of PEPP as needed, so they can get a head start on new measures already by increasing the pace of purchases.”
With rising COVID-19 cases in the US and Europe and the US Presidential Election next week, it is easy to forget that Brexit negotiations are moving forward. Brexit negotiation teams will continue in Brussels over the weekend until at least November 4. Our Head of Political Risk Analysis Wouter Jongbloed and Senior Advisor Chris Marsh are on top of developments. They note, “Both parties have agreed to attempt to narrow their differences by means of drafting actual legal provisions — a crucial step forward, albeit not of itself decisive. Differences remain however and parties will have to find common ground on (i) the amount of lost fisheries access for the EU and (ii) a ‘principled’ approach to questions of the level playing field and state aid. The timing of any announcement might prove tricky as well, complicated as it is by the need for EU negotiator Barnier to visit the key European capitals to explain the compromises, and the desire out of the UK to wait out the Presidential elections in the US.”
In terms of timing, Wouter and Chris state, “With a tentative European Council meeting penciled in for mid-November (around the 15th) and with the European Parliament meeting on November 23, the focus for any (positive) announcement shifts to the period between Nov. 5 (‘Guy Fawkes Day’ and the day after the latest negotiation round) and Nov. 7 (the latest PM Johnson can dominate the weekend news cycle) — perhaps slipping into Nov. 10 to clear the US Presidential newscycle and allow for one more round of negotiations after the present one (ending Nov. 4).”
Ahead Next Week: US Presidential Election Nov 3, Brexit negotiations, BoE policy decision, FOMC policy decision, US Payrolls, some BoP and trade data.
Select economic releases: Sunday, Nov 1: China Caixin Manufacturing PMI (Oct) Monday, Nov 2: German/EZ/UK Manufacturing PMIs (Oct), US PCE Price Index, US ISM Manufacturing (Oct), RBA Interest Rate decision. Tuesday, Nov 3: US Presidential Election, NZ Q3 Employment, BoJ Monetary Policy statement Wednesday, Nov 4: German/EZ/UK Services PMIs (Oct), US Trade Balance (Sep), Canada Trade Balance (Sep), US ADP Employment (Oct), US ISM Non-Mfg PMI (Oct), Australia Trade Balance (Sep). Thursday, Nov 5: BoE Policy Decision, EZ Retail Sales (Sep), US Initial Jobless Claims, FOMC Decision & press conference, Japan Foreign Bond Buying. Friday, Nov 6: US Payrolls (Oct), Canada Trade Balance, Canada Employment (Oct), Canada Ivey PMI (Oct).
USD broadly strengthened this week. The DXY reached a high of 94.09 and ended the week at 93.88. Support remains 93.00 and 92.00 – larger support. USD as a safe-haven came back into play as US equities declined for the week with some heavy down days. DXY strength was helped by EUR weakness. The single currency remained on its backfoot due to rising coronavirus cases in Europe, lockdowns there, and a dovish ECB (see above). In addition, ECB President Lagarde, in her opening remarks at the press conference, mentioned the exchange rate stating, “…in the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate.” EURUSD started the week above 1.1800 and ended at 1.1644.
GBPUSD was also under pressure, ranging 1.3075-1.2885 and ending the week at 1.2946. High beta NOK was the weakest vs USD in the G10 this week. NOK was negatively impacted by the risk off US equity environment and the negative news out of the Eurozone on further restrictions to contain coronavirus. European currencies could remain lagging due to the accelerating COVID shock. JPY ranged 105.03 – 104.03 and managed to squeeze out a small gain on the week but it wasn’t much given its safe-haven status and how much US equity indexes fell.
US Presidential Election & PredictIt Data
Our heatmap below for US states shows 2020 US Presidential Election Betting Odds, Biden % point lead daily. Focus is on the center of the heatmap where changes in betting odds could flip which candidate’s territory the state is in. North Carolina odds were recently neutral and have shifted to Biden. Florida odds are in Trump territory after having been in Biden territory at the start of October. Arizona and Pennsylvania odds are in Biden territory, but generally less so. Biden have odds deteriorated in both states since early-October. Georgia odds are in Trump territory, but less so. Georgia odds have been moving around since the time of President Trump’s coronavirus diagnosis and recovery. Iowa odds are in Trump territory – increasing a bit for the latest read.
Heatmap of US Senate Election Betting Odds, Democratic % Point Lead (currently indicating +4 seat majority). Though we note that betting odds can change quickly, here we highlight the two Georgia Senate seats – their odds have recently shifted Democratic. Also, Iowa odds have moved around – currently in Democratic territory but in mid-Sep had been in Republican territory.
In recent weeks for clients, we have focused extensively on the European 2nd wave as the key COVID-related global macro story. But it is also important to keep an eye on the US COVID trajectory for signs that it could be heading in a European direction along with cooler temperatures.
US: We remain watchful for signs that the US 3rd wave is spreading from the less populous states in the Northern Plains and Upper Midwest (which remain very hard hit, especially Wisconsin) to more dense and economically significant cities and counties such as Chicago and Boston. However, as the worst outbreaks in recent weeks (in terms of cases per capita) have been in predominantly rural counties, this may be politically relevant heading into the election.
Betting odds in Wisconsin, seen above our 2020 US Presidential Election Betting Odds heatmap above, have shifted deeper into Biden territory as COVID-19 cases/hospitalizations/deaths accelerated there. Other states to watch: Ohio, Iowa, Michigan and Minnesota. See our heatmap of the trend growth rate of new daily COVID-19 cases for US states here. Michigan’s growth rate has doubled (0.8% to 1.6%) since Oct 10th. In addition, Iowa, Minnesota, Ohio, and Wisconsin are among the 20 US states that are at their peak hospitalizations. See that chart here.
Charts below – US regions COVID-19 cases and deaths with forecast: Comparing trends in the US regions, our forecast shows that the Midwest region will have 522 fatalities by Nov 20, and is seeing the greatest increase in fatalities over the forecast period.
International: We are seeing explosive case growth across Europe with fresh highs in new cases in: Russia, Spain, Italy, Germany, Belgium, Netherlands, Czech Republic and Poland.
We have automated a grid of week-on-week growth of new cases (not cumulative cases) to get a fast read on whether policy measures are starting to work. Founder Jens Nordvig notes, “At this point, we have very elevated growth in many countries. Germany (+64%). France (+41%). But the UK and Czechia improving.” See that grid here. It will be updated daily on our Twitter account at 7am EST.
Our forecast of European fatalities over the next week foresees a potential spike to above 2000 per day which would be the highest in either the US or Eurozone since May (chart below). Across Europe (especially Eastern Europe) we are seeing a dramatic acceleration in fatalities (unaffected by testing levels) on a per capita basis led by Czech Republic, Hungary, Ukraine, Romania, Russia and Poland. Though from a low base, Switzerland and Portugal are also seeing a notable uptick in fatalities.
French President Macron suggested that mutation may be playing a role in the virus spread. The FT has an article on this issue that is free to read – no subscrition needed: Scientists warn of new coronavirus variant spreading across Europe.
Exante Happenings & Product Updates
US Election and Mexico’s Recovery: Implications for MXN. Founder Jens Nordvig and Gabriel Casillas, Managing Director, IRO & Chief Economist at Grupo Financiero Banorte held a client call talking — why the US election matters, key (positive) drivers of the BoP, and local factors.
Relevant into US Election 2020:
Our COVID-19 charts and heatmaps for US states and regions are updated daily, even on the weekend, on our Twitter feed here. As discussed, this could be an important dynamic to watch as we know from the 2016 election that voters can wait until the last days before making their voting decisions.
Bloomberg users – you can view Exante Data tweets on the terminal. Users can type into the blue command line: TWEETS BY EXANTE <GO>. Alternatively, to add to Launchpad: 1. Run SOCI <GO> 2. Type into the orange box Exante 3. Select the handle at the bottom “TWT_EXANTEDATA” 4. Click the white LLP <GO> to Open in Launchpad to view in Launchpad mode 5. To save the search >>> Click Actions in the top red tool bar >> Save Search
Head of Asia Pacific Grant Wilson talked to Aus Biz last week about the US Election and what the November 4 Asia trading session could look like. You can watch the interview here.
For more information, to receive the MXN presentation replay, and/or to see a demo of our data platform, institutions — please reach out to us here.
MarketWatch did a nice big picture overview on how mobility data has been used to track coronavirus and the economy in 2020, with some key quotes and thoughts from Jens.
Head of Asia Pacific Grant Wilson has a new column in the Australian Financial Review: Reserve Bank is long WA and short NSW. “With the RBA set to unveil outright quantitative easing, a more expansive explanation of its purchases of bonds issued by states and territories is required.”
Senior Advisor Brad Setser has a recent blog out for the Council on Foreign Relations. The Changing Nature of Turkey’s Balance Sheet Risks.