Morning Commentary: Cloudy With a Chance of Sunshine
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Cloudy With a Chance of Sunshine
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Andrew Kositkun Foreign Exchange Head Trader
Despite the gyrations in risk last week, markets remain broadly supported as polls and oddsmakers continue to predict not only a Biden victory but a Democratic sweep of Congress. Given this, it should be noted that the Biden–Trump gap has stabilized, which explains some of the consolidative nature of supported risk markets.
Should Democrats win the White House and both chambers of Congress, the expectation is for major expansion of fiscal policy and reduction in trade tensions, both of which are supportive of the markets. Conversely, the prospects of higher taxes and a more active regulatory stance represent offsets to other positive economic growth factors. For now, markets appear to be focused more on the former than the latter as the key near-term driver. Looking ahead, the markets will be keying in on Thursday’s final presidential debate, although historically, the first debate has the most impact on public opinion.
On a global level, COVID-19 concerns remain, with recent spikes in infection numbers prompting governments around the world to reimplement health/welfare-positive but growth-negative lockdown measures. However, continued support from fiscal and monetary policy supports a constructive outlook for 2021, as China’s economic rebound remains robust and as the U.S. jobs market continues to recover faster than expected. Additionally, Europe should ultimately find a common policy response, and progress continues on a vaccine. This all suggests a continuation of the global recovery, albeit with bumps along the road that will delay but not derail the recovery.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have narrowed the gap between the two sides ahead of today’s stimulus deadline for a pre-election deal. Given this, the White House and House Democrats remain far apart. Even if Pelosi and Mnuchin are able to come to an agreement, Senate Republicans are looking for a package much smaller than the amount Pelosi and Mnuchin are negotiating. With virus numbers rising, economic activity constrained and the labor market softening, the U.S. economy needs additional stimulus, but this is unlikely to come before 2021.
The U.S. Senate is scheduled to vote on a stand-alone bill to allow unused funds from the March stimulus package to be used in the Paycheck Protection Program today. Tomorrow, the Senate should vote on the skinny $500 billion stimulus bill that House Democrats have already rejected.
Microphones at this week’s presidential debate will be muted at the top of each segment to allow each candidate two uninterrupted minutes. The microphones will be turned back on afterward to allow for discussion.
Regarding U.S. election voting, 37 million mail-in ballots, or 23% of all votes counted in 2016, have already been cast.
The Reserve Bank of Australia (RBA) released dovish minutes. In the minutes, the central bank “agreed to maintain highly accommodative policy settings as long as required and to continue to consider how additional monetary easing could support jobs as the economy opens up further.” Prior to the release of the minutes, RBA Assistant Governor Christopher Kent also made dovish comments, as he stated there was still room to compress short-term rates.
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