Week Ahead - (Second) Waving Goodbye To The European Recovery?

Time to frame the upcoming week.

Let's get the U.S. politics out of the way first.

Yes, they're boring, but expect them to be back in your headlines again from Monday.

Stimulus first.

McConnell is putting a $500 billion bill out for a vote;

Pelosi has apparently set a 48 hour 'deadline'..

Everyone loves a deadline.

No-one sticks to them.  

Presumably this one will be for the stimulus bill, but there will be no deadline on passing the blame around.

Anyway, the market is ignoring this saga for now, assuming that stimulus is coming sooner or (a little) later.  

More detail here via Bloomberg

This tweetstorm from September 30th is looking very prescient;

(If you want to know more about the prisoner's dilemma, the always brilliant Farnam Street has you covered)

Only two full trading weeks until the election...

Everything seems a little too calm and quiet.

The blue wave narrative has been well and truly sold.

Surely it won't be that easy?

Well, if you only look at the polls, the result is nailed on.

JPM's Kolanovic makes the case for voter registration numbers;

ZH and Fox are both right-leaning of course, but it is an interesting pattern to note, and something not reflected in the often-quoted polls.

Then there's the guns...

Wait.... Guns?

Why would this be relevant?

Ok, it might not be.

But it jumped out to me so it's getting a mention.

Republicans are roughly twice as likely to own guns as Democrats.

The disparity of enthusiasm between rallies is also noteworthy, with thousands turning up to support President Trump every time he appears, and Biden hosting much smaller events.

This could simply be a deliberate strategy to show greater Covid responsibility vs Trump's more cavalier approach, but who really knows?

All of which is a long-winded way of saying that no-one should be counting any chickens.

The final debate takes place on Thursday night.

Everyone knows the debates aren't supposed to matter, but Trump looks to be back on form.

His performance at the previous debate was lacklustre, and came 3 days after the 'super-spreader' event, and 3 days before he tested positive.

Biden's 'fogginess' and 'Irish temper' could yet make an appearance if Trump gets under his skin.

Maybe he even has a little dance to win a few votes?

Actually, that won't help.

Either way, I believe this race will be far tighter than the polls suggest.

A closer race increases the chances of a contested election.

Whilst this risk is probably overblown, caution is likely to increase as we approach the election, especially if Trump pulls more skeletons out of the Biden closet or begins to close the gap on one measure or another.  

Covid - Europe Struggles To Contain The Spread

These headlines speak for themselves;

Cases are increasing alongside hospital admissions and deaths (albeit at a FAR lower rate than the first wave);

Nonetheless, restrictions are being rolled out, and the economy will suffer further.

It had barely started to recover, and the ECB talking heads are already being rolled out...

Brexit - Everyone's "Disappointed"

That's the latest.

At this stage, everything is just for show.

Exactly the same as the stimulus, traders aren't buying into these deadlines.

Bloomberg even ran an article about it yesterday.

Pound Traders Shut Out Brexit Noise Until ‘Real Deadline’

What odds a few days of tough-talking, and then knuckling down to negotiations again next week?

U.S.-China tensions to ramp up again?

This is just rhetoric for now, but Trump may have something to say on the matter.

One to keep an eye on just in case he decides it's the right time for a show of strength against China before the election.

Market Prep (Tim)

I'm anticipating a softer risk tone this week.

Last Monday saw strong rallies in the S&P & Nasdaq that were gradually unwound over the following four days.

The 3400/20 (S&P) and 11500/600 (Nasdaq) areas should certainly attract buyers (if reached), but I have my doubts if a real risk on tone can push them higher again in the upcoming fortnight.  

Not going permabear at all, nor do I anticipate any major selloff this week.

Dips will still be bought, and TINA is still in effect.  

The current landscape of intensifying no deal Brexit rhetoric, upcoming U.S. elections, and the return of Covid restrictions in Europe (earlier than many anticipated) certainly isn't conducive to increased risk-taking.

Markets have focused their gaze far beyond all of this.

However, a lack of willing buyers ahead of the election would see a continuation of last week's drift lower.

In FX, USD positioning is turning.

Euro speculative longs continue to lose conviction, reducing by another 5.7K last week.

This AUDCAD idea from JPM is an interesting one too;

Loads of earnings this week

On the calendar, we get off to a fast start this week with Japanese trade and a data drop from China.

Q3 GDP is forecast to have grown at 3.2% QoQ and 5.2% YoY.

September's industrial production is expected to continue the recent strong trend and increase by 5.8% YoY.

Retail sales (and general consumer spending) have stubbornly refused to keep up with the strong production recovery but are forecast to show growth of 1.8% YoY for September.  

Japan's trade data for September is expected to continue the slow return to normality, with the decline in exports expected to have eased to -2.4% YoY vs -14.8% in August.

Imports are expected to show a slight further decline, to -21.4% YoY vs -20.8% in August.

Also worth keeping an eye on the OPEC+ JMMC meeting.

Russia's energy minister Alexander Novak recently said that the group will taper the output cuts as planned (from Jan 1st 2021), although the Joint Technical Committee expressed concerns that a spike in Cornovirus cases and increase in Libyan output could throw a spanner in the works.

No change in policy is anticipated at this meeting, so it will be a case of watching for clues ahead of the next meeting, scheduled for 30th of November.

The rest of Monday's calendar is completely uninspiring.

Catch you in the morning!