By Deepta Bolaky
Risk sentiment remained dampened last week following the chaotic US stimulus negotiations, Brexit woes and the resurgence of coronavirus cases in some parts of the world while vaccine trials suffered major setbacks.
Investors will likely continue to monitor the same dominant themes over the following days.
As the pandemic continues to create havoc across the globe, the 2020 US Election remains the key market theme for investors. The handling of the coronavirus pandemic has brought much uncertainty about the election race. As per recent polls, former Vice President Joe Biden still maintains his lead over President Donald Trump in the presidential race. Market participants are betting that a contested US presidential election is becoming less likely fuelling expectations of a Biden win and a unified government.
For investors, the outcome of the election is heavily tied with the expectations of the size of the stimulus package.
A 48-hour deadline has been sent by the Democrats to pass another relief bill to support the pandemic-induced US economy. The Democrats are proposing a bigger stimulus package of $2.2 trillion compared to a $1.8 trillion package from the Trump administration. Investors will likely monitor the progress leading up to the deadline. Any agreement before the US election will be a booster for the stock market.
The alarming surge in the number of COVID-19 infections in Europe is prompting leaders to reimpose various forms of social distancing measures and lockdowns. Over the weekend, governments across Europe have stepped up their efforts to contain the virus and impose more restrictions. European markets will likely sway with coronavirus-related headlines.
Aside from politics and virus concerns, attention will be on the US corporate earnings season. After major US banks reported their third-quarter earnings results, investors will eye Netflix reports among many others.
Investors will receive a fresh round of PMI figures to gauge the global recovery. The immediate focus will be on Europe amid the renewed lockdown restrictions as the latest data has painted a mixed picture on the recovery in Europe.
In the UK, even though the economy has fared better than its European counterparts, the fresh figures will be assessed against the Brexit woes and the various social distancing measures.
Markets participants are gearing up for a week packed with central banks speeches from major economies across the week. The guidance from central banks stays relevant for the financial markets given that the global economy is heavily dependent on the amount of stimulus in the economy.
The week will kick off with GDP figures in China. Other notable leading economic indicator this week will be Retail Sales to be released in the UK and China.
Crude oil prices remain stuck within a range below $50. The Oil Market Report October 2020 and the World Energy Outlook 2020 released last week provided some clarity on the energy market. In its October report, the International Energy Administration (IEA) reported that volumes of crude oil held in floating storage fell sharply by 70 mb (2.33 mb/d) to 139.1 mb in September. The IEA also predicted a significant stock draw in the fourth quarter which provided some support to crude oil prices. However, the World Energy Outlook 2020 report released earlier this week reiterates the struggles of the energy market in the coming years.
Given the forecasts on the demand side, there is also increasing pressure from OPEC members and its allies to balance the supply side and avoid flooding the oil market with extra supply.
The demand side narrative continues to remain the major concern following the renewed lockdown restrictions and social distancing measures in certain parts of the world. On the supply side, traders will likely continue to monitor the weekly oil reports for fresh trading impetus.
Last week, the XAUUSD pair swung between losses and gains across the week. The pair has reclaimed the key psychological level of $1,900 level. The main drivers for the precious metal remain the US stimulus negotiations and the movement of the US dollar.
By Deepta Bolaky
|Tuesday, 20 October 2020
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