While President Trump still appears to be in denial about the loss of the Presidency to the Democrats and Joe Biden and still refusing to concede, markets appear to be unconcerned about the prospect of a contested outcome, and now appear to have moved on to what might happen next.
US markets managed to reverse all of their losses of the previous week, posting their best weekly performance since April, despite the uncertainty of Washington politics, as the narrative moved on to what might well happen under a Biden administration, which for the moment, looks to have been deprived of a majority in the Senate.
The calculation here appears to be that a continued Senate majority for the Republicans will act as a brake on some of the more radical Democrat policies on higher regulation and taxation, though with a Georgia runoff for the contested Senate seats due in January, the possibility of a blue wave could still happen.
While stock markets had a decent week, the US dollar had an awful one, tumbling to its worst week since July as the Federal Reserve indicated it remained committed to doing more on the economy in the absence of further imminent fiscal stimulus.
For now, the US economy doesn’t appear to show any signs of needing a stimulus pick me up, after Friday’s payrolls data showed that the unemployment rate in October slid back by 1% to 6.9%, at the same time as the participation rate rose to 61.7% from 61.4%, as more Americans returned to the jobs market.
Another 638k jobs were added in October, and the ISM reports last week for both services and manufacturing showed an economy that was still showing resilience despite sharply rising coronavirus infection rates.
Despite this fairly solid job recovery the fact remains that there are still 9.2m Americans who don’t have jobs now, who did in January, with the actual number quite possibly a lot higher than that.
In Europe the picture looks a little bleaker economically, particularly in the services sector, as Greece and Italy joined the likes of UK, Germany and France in reimposing lockdown restrictions across their regions.
The UK/EU trade talks look set to continue this week, with the sides, either as far apart as ever on a deal, or have made significant progress on a number of key points, depending on who you choose to talk to. While the narrative around this remains as fluid as ever, and varies according to whom you chose to talk to, it is clear the main points of difference remain around fishing rights, and competitions rules, or the level playing field.
In Asia, and in China in particular, the picture looks better with the latest China October trade data over the weekend showing a continued improvement in economic activity, after the decent September numbers.
Exports once again outperformed growing at their fastest pace in 19 months, though this, as in previous months, was helped by strong demand for PPE and other medical supplies as coronavirus cases soar across the world. The rise of 11.4% far outweighed the 9.2% gain expected, while imports rose for the second month in succession, though they weren’t as good as the 13.2% rise in September.
The rise in imports was much more modest, only rising 4.7%, half of the 9.5% that was expected, which was a little disappointing, however given the strength of recent PMI data, it looks increasingly likely that barring a second wave of coronavirus, China looks set for a strong finish to the year.
This week looks set to see a positive start to the week in Europe after a similarly positive Asia session saw the Nikkei 225 hit its highest levels since 1991, while Chinese markets also rallied on the hope that trade tensions, between the US and China could well start to diminish in 2021.
EURUSD – has moved above the October highs, and could head back towards the September peaks at 1.2010. We also have resistance at 1.1920 which could also act as a barrier. Support comes in at the 50-day MA at 1.1780.
GBPUSD – finding resistance at the 1.3180 level which it needs to overcome to target the 1.3250 area. There is interim support around the 1.3070 area, which if broken could see a slide back to the 1.2980 area
EURGBP – currently finding resistance up near the 50-day and 100-day MA’s up near the 0.9060 area. A move back below the 0.9000 area retargets the lows last week at 0.8940.
USDJPY – looks set for a move lower towards the March lows at the 101.80 area, while below the 104.00 level.