Global deaths from Covid have passed the 1 million mark. Covid headlines remain one of the main drivers of global markets as the latter are trying to gauge the possible trajectory of the global economy and the likely policy response. Many countries are contemplating further tightening of Covid-related restrictions, which means that their economies may require more support. With their borrowing costs remaining low, developed economies may continue pursuing lax fiscal policies in years to come. Developing countries may find they have less room for fiscal stimulus, partly because the recent increase in risk aversion has driven up their borrowing costs.

On Tuesday evening, the incumbent US President Donald Trump and Joe Biden, the Democratic candidate, had their first televised debate.The debate was extremely charged emotionally. Repeated interruptions by President Trump prevented a meaningful discussion of candidates’ views on important issues. The aggressive debate tactic is unlikely to help Trump to lure more voters into his camp. Meanwhile, Biden, who maintained dignity and avoided potentially costly mistakes during the debate, should not lose any of his support. Importantly, he managed to emphasize Trump’s failures in dealing with the coronavirus epidemic in the US, which was among his main priorities during the debate. On balance, the debate may have improved Biden’s chances to win.

The US markets are also watching the fate of the new $2.2trn fiscal stimulus plan released by the White House Democrats. There seems to be little chance of the Republicans supporting the draft plan in the Senate during the most acute phase of the US election campaign. With the recent demand indicators surprising on the upside (see below), the Republicans may dispute the need for another generous package.

Governor of the Bank of England Andrew Bailey said that he could not put a date on the end of negative rate review and that negative rates would require extensive communication. His statement supported the British pound, which has performed well vs. USD ahead of the crucial talks on the future of the UK-EU trade held this week.

A slew of US demand-related statistics released yesterday was surprisingly strong. US September consumer confidence rose to 101.8, vs 90 expected, the highest since April. US August goods trade balance widens to a record $83bn deficit, led by a rise in imports (the latter also indicates demand recovery). US 20 city home prices advance at 3.9% YoY, highest since Dec 18.
Eurozone September economic confidence increased more than expected, to 91.1 (which is the highest reading since March). German Sep CPI fell to -0.4% YoY vs -0.1% expected, lowest since 2015. The CPI move was driven by low energy prices and the VAT reduction.

In the emerging market space, the Russian rouble and the Turkish lira remained in focus. The Russian currency is suffering from a combination of negatives, including the threat of US and EU sanctions for the poisoning of opposition politician Navalny, risk aversion ahead of the US elections, and oil market softness. The announcement by Sberbank that it is going to pay generous 2019 dividends in October (part of which are going to be exchanged into FX and repatriated) has not helped. As USDRUB approached the psychological level of 80, the Russian Central Bank promised a little more FX intervention in the open market in 4Q, which helped to stop the slide. The Turkish lira remained under pressure yesterday as Armenia blamed Turkey for shooting down the Armenian jet. Turkey denied this report.

By Simona Stankovska

https://exante.eu/

© 2020 Copyright Simona Stankovskar - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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