Yesterday’s move higher in US markets appears to be predicated on the belief that whoever wins in next month’s presidential election, there will be a sizable fiscal stimulus package coming down the pipe, with the only unknown being around the size of any deal.
While this seems an eminently sensible point of view, after all whoever takes over will have enormous challenges to deal with, the reality is that a Biden presidency will in all likelihood see a lot of new regulation and red tape, which could well hit the Big Tech sector disproportionately, something that investors appear content to ignore for the time being.
This is no better illustrated by yesterday’s big gains in the tech sector, with. Apple shares leading the way ahead of today’s expected announcement of a new 5G iPhone, while Amazon also rose sharply ahead of its Prime Day promotion which starts today, with the Nasdaq and S&P 500 both back within touching distance of their recent record highs. Today’s Asia session has continued this positive read, albeit on a subdued basis after Hong Kong trade was curtailed due to a typhoon.
The latest China trade data for September also showed a big improvement in both export and imports data. The latest exports data showed an increase of 9.9% in September, with strong demand for medical PPE once again boosting the numbers. What had been more concerning, and had been for some time, was the weakness in the imports data, and which until last month had been showing little sign of a significant pickup. This appears to have finally changed, as imports for September surged to their best levels this year, rising 13.2%. This rise was only the second positive reading this year, and was the biggest rise since the end of last year when imports rose 16.3%, as automakers and large manufacturers started to return to normal levels of production.
In the next hour or so we’ll get the latest snapshot of the UK labour market, and its likely to be a sobering read. Last month we saw the first indications that the ILO unemployment numbers in July were starting to exhibit the beginnings of the employment shock starting to impact the UK labour market, as a result of the fallout effects of the coronavirus pandemic. A rise in the ILO unemployment rate to 4.1% from 3.9% was the first official sign of the unemployment tidal wave about to hit the UK economy, and in light of the new restrictions announced yesterday, today’s expected move to 4.3% for the three months to August will still underplay how much unemployment levels are likely to increase in the months ahead, particularly since the new countrywide furlough scheme is much less generous than the one which expires at the end of this month.
The ONS has also said that a change of methodology in the latest numbers could well see the headline number jump quite sharply, with a number above the 4.3% consensus a real possibility. This wouldn’t be a surprise given the claimant count rate for August came in at 7.6%, and with the tsunami of job losses that were announced through August and September this number is likely to edge closer to 8%, with the total number of jobs lost since March already close to the 700,000 mark, and likely to move above it when the latest data is released later this morning. Jobless claims for September are expected to increase by another 80,000 on top of the 73,700 in August
There were some bright spots in the data last month with construction, transport and storage sectors doing well, as vacancies increased. The hope is that this trend has continued into September, however with the furlough scheme still running the fear is that the worst is still to come.
The latest German ZEW survey is likely to continue the wildly differing gulf between expectations and the current situation for investors in the latest September survey. For the last six months this gulf has been at record levels, with the current situation being uniformly pessimistic between -60 and -90, while expectations were uniformly optimistic at record high levels of 77.4 last month. At some point this gulf will eventually close, however it is unlikely that it will happen anytime soon as we head into winter and further lockdown restrictions become more likely.
The lack of inflation pressure in the US economy is likely to be illustrated in the latest US CPI inflation numbers for September, which are expected to come in at 1.4%, up slightly from 1.3% in August.
US banks are also set to be in focus this week, starting today with JPMorgan Chase’s latest Q3 numbers later today, with the main focus set to be on non-performing loan provision, against the performance of its investment banking division.
EUR/USD – the move back above the 50-day MA shifts the focus back towards the previous peaks near the 1.2000 area, however there is some resistance at the 1.1830 area. We need to see move through here to target the 1.1900 level. The 1.1780 area should now act as support.
GBP/USD – the pound looks set for a move higher after breaking above the 50-day MA at 1.3020. The next resistance sits near the 1.3200 level. A move below 1.2980 undermines the current bullish scenario.
EUR/GBP – has continued to drift lower over the past few weeks with the prospect that a move below the 0.9020 area could see a sharp decline towards the September lows at 0.8865. Resistance currently sits up near the 0.9130 area.
USD/JPY – currently has cloud resistance at the 106.20 area, and while below the risk is for a move back to the 104.80 area.
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