Investors and traders are strapping in for what may prove to be the biggest week of the year. Rising Covid-19 infection rates meet a packed calendar of events and data. The action this week may determine the performance of markets for the year.
The US election is drawing attention to the likelihood of further containment of an already weakened US economy. Analysts are drawing a line from the situation in Europe, where the UK and Italy joined a growing list of countries moving back into lockdown.
The worst case scenario for markets is a long period of electoral uncertainty, either through a close contest or a disputed result. The record level of postal and pre-voting exacerbates these risks. The most immediate concern for markets is that political paralysis will delay or diminish a fiscal response to the deteriorating coronavirus situation.
However there is much more for investors to mull. Today and tonight brings the release of PMIs from Japan, China, the Eurozone, Germany, the UK, Canada and the US. These forward looking indicators could provide crucial, up to the minute indications of the health or otherwise of economic activity. The data continues throughout the week, and inflation and retail activity indicators are in focus ahead of the US non-farm payroll and China trade numbers on Friday night.
As if this wasn’t enough, the Reserve Bank of Australia, the Bank of England and the US Federal Reserve deliver interest rate decisions this week. The RBA has flagged a rate cut and potential quantitative easing at its meeting tomorrow, which may see local shares outperform global markets. Nether the Fed or the BoE are expected to move, but their read on the economic outlook has potential to shift market thinking.
Given the week ahead, traders anticipate a muted, lower volume start to the trading week.