The Opening Belle

Into the last week of September (month and quarter end) and risk sentiment is positive this morning.

U.S. Futures are up

and European markets are heading towards a positive open.

Let's quickly recap some weekend stories, and then take a look at the news events for the week ahead.

It's a familiar story since the pandemic started.  

Economic indicators in August, ranging from exports to producer prices and factory output, all pointed to a further pickup in the industrial sector.

However, factory activity grew at a slower pace with smaller firms facing sluggish market demand and financial strains.

The SMIC restrictions were confirmed;

SMIC recently began manufacturing chips at the 14 nanometer process node, about two generations behind the technology used by rival Taiwan Semiconductor Manufacturing Co Ltd.

The restrictions, however, throw a wrench in SMIC’s plans as it relies on equipment produced by companies hailing from the U.S. or U.S-allied nations.

Following news of the restrictions, an op-ed published on Sunday in the Global Times, a tabloid owned by state-backed media outlet People’s Daily, called for China to embark on a “long tech march” to counter the U.S.’ high-tech suppression against China.

There was some temporary relief on the TikTok front

U.S. District Judge Carl Nichols granted a preliminary injunction sought by TikTok owner ByteDance to allow the app to remain available at U.S. app stores, but declined “at this time” to block additional Commerce Department restrictions that are set to take effect on Nov. 12 that TikTok has said would have the impact of making the app impossible to use in the United States.

Better late than never, ECB's Visco commented on the euro.

He was surprisingly explicit too;

“The euro’s recent strengthening is worrying us because it generates further downward pressures on prices at a time when inflation is already low,” Visco, Italy’s central bank governor, told an event in Trento.

“The monetary policy implications are obvious: if the downward pressures jeopardise our price stability objective, we’ll have to intervene.

BOE's Tenreyro has an appointment at SpecSavers;

“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices,” she said.

All the facepalms for that one.

Someone show her the European bank index.

On the virus front, cases are increasing, as is the potential for further social unrest.

In the UK

A senior government source said: “The nation and the party wasn’t ready for us to go any further last week. There wasn’t a wide enough understanding of how substantial the second wave could be. Unlike the first lockdown, nobody has seen pictures of body bags in Spain or France on the TV yet, which had a very powerful effect. You have to take people with you.

“Tougher measures on social interaction will have to come though. They’re inevitable in some parts if you look at the numbers.”

France & Spain are already suffering strained relations between national and local/regional governments.

This segment via the FT sums up the bickering that lies ahead;

Even though Marseille hospitals are already under strain, local political leaders have rebelled against tougher restrictions imposed by central government, insisting they had the surge in cases under control.

The deputy mayor of Marseille called the curbs “an affront”. But French health minister Olivier Veran said the “health situation in Marseille has badly deteriorated for several weeks leading to a major risk”.

Looking ahead, there's a lot going on this week.

Aside from the data points (which will be covered in a separate post), we have month/quarter end flows, the first presidential debate, Brexit talks,

The U.S. Stimulus Bill

There is plenty of chatter about this after negotiations resumed.

“We are having our conversations. And when I have a conversation with the administration, it is in good faith,” Pelosi said on CNN. “I trust (Treasury) Secretary (Steve) Mnuchin to represent something that can reach a solution. And I believe we can come to an agreement.”

The bottom line.

They are not as far apart as they were.

Leaving the population without fiscal support heading into the vote is a high risk strategy that could yield some unpredictable results.

There is no guarantee, but we should prepare for all outcomes.

I wrote in more detail about this here;

Brexit talks continue;

No major breakthroughs expected yet, but sentiment matters so worth monitoring (as usual).

The first presidential debate on Tuesday:

 Trump and Biden will field questions for 90 minutes, without commercial breaks in the first Presidential debate on Tuesday... brutal. Interesting opinions in the press about bar being set exceptionally low for Biden so unless Trump dominates perhaps he doesn't even need to win— Anthony Cheung (@AWMCheung) September 27, 2020 

It will certainly be an interesting event.

The New York Times managed to get hold of Trump's tax returns

Just in time for the debate too.

I know Trump is the master of polarity, but I'm not sure that suffering chronic losses is the best way to avoid tax.

ECB Conference on Wednesday

ECB president Christine Lagarde is among the speakers together with ECB chief economist Philip Lane, Bundesbank’s chief Jens Weidmann, Banque de France’s governor François Villeroy de Galhau and Bank of Spain’s governor Pablo Hernández de Cos.

On the calendar, no data of note today, but we do have a few speakers with the ECB's Schnabel speaking twice, Buba's Mauderer, and the Fed's Mester.