Danske Research Team
Danske Bank A/S
The adverse market environment persisted last week. COVID-19 cases in Europe are still increasing (implying more restrictions), while infection numbers in the US are not declining as fast as hoped . The Fed remains (at least at the moment) unwilling to ease monetary policy further and the prospects for support from the fiscal side are also fading fast. The mix weighed again on equity markets, with Europe outperforming, underlined by the rotation out of US tech. EUR/USD broke below 1.17, weighed down by the resurging uncertainty of lockdowns in Europe and the downward pressure on global yields continued.
One notable exception was Italy, which saw its 30Y government bond yield touch a record low of 1.75%, after the governing coalition fended off a challenge by Matteo Salvini's right-wing populist League party at regional elections. As right-wing momentum continues to ebb and the governing coalition has been credited with handling the coronavirus crisis fairly well, the risk of Italian snap elections has decreased significantly, probably delaying a vote until at least early 2022. That said, we expect markets to keep a close eye on how Italy plans to use the EU money to kick-start its economy and we expect the release of a 2021 budget draft in the coming week. Germany was a bit quicker and unveiled its 2021 fiscal plans last week, which assume continued new borrowing until 2024 and thereby no return yet to the balanced budget policy from pre-coronavirus times.
September PMIs showed a mixed picture in Europe, with the manufacturing sector still in the driving seat of the recovery, while services PMI fell back into contraction territory for the first time since June. While the lost momentum in domestic demand is worrying, forward-looking subcomponents such as expectations and employment plans held up, suggesting that service providers still perceive the recent headwinds as temporary. We received a similar message from EU households last week, as consumer confidence improved despite the recent infection outbursts.
Across the Atlantic, PMIs held up better than their European counterparts, remaining comfortably in expansion territory, with the US infection peak in August. Also on a positive note, the US House managed to pass a stop-gap funding bill and thus avert a government shutdown until 11 December. That said, the US Supreme Court judge fight continues and while President Donald Trump has said he will name the successor to Ruth Bader Ginsburg on Saturday, it does seem to complicate the negotiations over another fiscal relief package.
Apart from US politics, Fed minutes/speeches and the last Brexit negotiation round ahead of the important EU summit on 15-16 October, next week also brings a string of important macro data. US private spending data for August will be in focus after the weak retail sales print and the September US jobs report on Friday is likely to see a continuation of the positive employment trend of +1m. Markets are also set to keep an eye on Chinese PMIs out on Wednesday morning, for a clue about where the global recovery is heading. In Europe, the highlights of the week are the September HICP figures on Friday, which we expect to show a small rebound in core inflation from the August plunge, and the ECB Watchers Conference, where a range of Governing Council members will be on the wires with comments that could move markets.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
AUD/USD dips below 0.6600 following RBA’s decision
The Australian Dollar registered losses of around 0.42% against the US Dollar on Tuesday, following the RBA's monetary policy decision to keep rates unchanged. However, it was perceived as a dovish decision. As Wednesday's Asian session began, the AUD/USD trades near 0.6591.
EUR/USD edges lower to near 1.0750 after hawkish remarks from a Fed official
EUR/USD extends its losses for the second successive session, trading around 1.0750 during the Asian session on Wednesday. The US Dollar gains ground due to the expectations of the Federal Reserve’s prolonging higher interest rates.
Gold wanes as US Dollar soars, unfazed by lower US yields
Gold price slipped during the North American session, dropping around 0.4% amid a strong US Dollar and falling US Treasury bond yields. A scarce economic docket in the United States would keep investors focused on Federal Reserve officials during the week after last Friday’s US employment report.
Solana FireDancer validator launches documentation website, SOL price holds 23% weekly gains
Solana network has been sensational since the fourth quarter (Q4) of 2023, making headlines with a series of successful meme coin launches that outperformed their peers.
Living vicariously through rate cut expectations
U.S. stock indexes made gains on Tuesday as concerns about an overheating U.S. economy ease, particularly with incoming economic reports showing data surprises at their most negative levels since February of last year.