We are entering a bumpy period of political uncertainty against the backdrop of a global economy still reeling, and rebounding, from the Covid-19 pandemic.
Over the next few months, the US domestic political scene will likely be dominated by the replacement of US Supreme Court Justice Ginsburg, amid the lead up to the US Presidential election. The passing of another US stimulus bill remains in the mix but may take a backseat – with obvious implications for the pace of the economic rebound. US monetary policy will remain a key lever. This week, US Fed Chairman Powell will give three days of testimony regarding the CARES Act. There will also be speeches by Vice Chair Quarles and Governor Brainard regarding the economic outlook.
The BoE announced last week that it was exploring how negative rates could be implemented effectively. The BoE Governor Bailey will speak early this week and several risks for the UK economy are front and center. As noted in the minutes last week, UK annual inflation fell to 0.2% in Aug, triggering the exchange of letters between the Governor and Chancellor. One of the evolving risks is the lack of progress on the negotiation of the Brexit free trade agreement with the EU. The BoE noted in the minutes last week that the current path of growth for the UK economy was based on an orderly Brexit with the establishment of a free-trade agreement with the EU. The BoE will review this at the Nov meeting. The other risk is the rising trend in new covid-19 cases in the UK (and Europe). Its unclear what steps may be taken, if any, to contain a further outbreak.
The prelim global PMI’s for Sep will be released this week. This will provide some further insight into the pace of the rebound across some of the major economies.
US Fed purchases of Treasuries and MBS will ramp up. This week, the US Fed will purchase $21bn in Treasury Securities (last week $17bn). The purchase of MBS has been elevated over the last few weeks and will increase further this week to $29.6bn (last week $24bn).
US Treasury issuance will be slightly lighter this week. The US Treasury will settle approx. $307bn in ST Bills and FRNs, raising approx. $6bn in new money. The US Treasury will also auction $155bn in Notes this week that will settle next week.
More detail (including a calendar of key data releases for the week) is provided in the briefing document – download the weekly brief here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
