US equity indexes gained on the week:  DJIA +3.3%, S&P 500 +3.8% and NASDAQ rose +4.6%.

This was another headline driven week. US President Trump was released from the hospital on Monday. The VP debate took place on Wednesday between Senator Kamala Harris and VP Mike Pence at which a fly captivated the nation’s attention.  President Trump called off the fiscal stimulus negotiations, but then reversed course – wanting a smaller fiscal package and then again calling for a larger one. The FBI thwarted a plot by two militia groups to kidnap Michigan Governor Whitmer. The October 15th Presidential debate went virtual, but then President Trump announced he would not participate, so it was cancelled. (See how betting odds on the US Presidential Election from PredictIt shifted over the week – PredictIt section below). 

In the meantime, investors monitored back and forth headlines about the prospect for near-term fiscal stimulus in the US, Europe and UK announced more restrictions aimed at stopping the rising COVID-19 case counts, while the US loosened some. ECB minutes were released. 

On ECB Minutes, Senior Advisor, Chris Marsh notes that the ECB’s accounts of the Sept policy meeting paint a picture of a more dovish and pro-active Governing Council in contrast to the press conference. There was clear concern that risks were tilted to the downside and that inflation was still projected below target in 2022. There was a need to keep open the option of more policy action — they are watching incoming data closely, and they should be ready to adjust any of their tools appropriately (meaning rate cuts/TLTRO adjustment as well or instead of as PEPP).  Here are some key quotes from the minutes: The balance of risks were still “tilted to the downside. While the NGEU recovery plan was a positive development, uncertainty about the evolution of the ongoing COVID-19 pandemic and the potential materialization of adverse real-financial feedback loops called for vigilance.”

Over the coming months additional information would help to inform the direction of policy. This included tracking the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangements and decisions on fiscal plans.  “In the prevailing environment of high uncertainty, keeping a steady hand with respect to monetary policy was seen as most appropriate. At the same time, the case was made for keeping a “free hand” in view of the elevated uncertainty, underpinning the need to carefully assess all incoming information, including the euro exchange rate, and to maintain flexibility in taking appropriate policy action if and when needed. Over the coming weeks more data would become available, which would provide improved visibility about how the various forces at play would influence the medium-term inflation outlook. In this regard, the underlying dynamics of the pandemic, developments in negotiations on the post-transition Brexit arrangement, the outcome of the US presidential election and decisions on fiscal plans at the individual country level as well as at the euro area level had to be closely monitored.”

 

Interested in our weekly central bank balance sheet updates from Chris? You can find them here: ECB Q-end, Bank of Japan.

Founder Jens Nordvig reaches 10k followers on Twitter.  In this thread, Jens thanks his followers and gives his thoughts on why Twitter is useful, how he uses it, and insights he has gained in the process. “It has also been a great help to use the ‘robotic feeds’ we now have on @ExanteData. I use them to absorb more information myself, and I push them to @jnordvig when I think there is something especially interesting. It is a way to come up with fresh perspectives, from raw data.”

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Media

Head of Asia Pacific Grant Wilson wrote an opinion column for the Australia Financial Review: The Northern Territory must not lose its voice. “Absent a response from the Morrison government, the Northern Territory is set to lose one of its two seats in the federal parliament at the next election. This would further disenfranchise our Indigenous community.”

 

Senior Advisor Brad Setser has a new blog out for the Council on Foreign Relations – Record Chinese Bilateral Surpluses With the United States Are Not Mirrored in the U.S. Trade Data. “Is China’s surplus with the United States back at a record level? It depends. In China’s data, China’s exports to the United States and its surplus with the United States are at all-time highs. The United States’ import data, however, shows fewer imports from China than China reports exports—which is interesting, because the norm has long been the other way around.”

 

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