The US Presidential election, central bank policy decisions, and a heavy data week will feature against a backdrop of new peaks in Covid-19 infections in the US, Europe and the UK. Further restrictions have been announced for European countries, and another month-long shutdown has been announced for England.
The US Presidential election will be held on Tuesday 3 Nov. A ‘blue wave’ result is not assured as there is the risk of a surprise Trump win, a contested election, and/or a divided government. The wider use of mail-in ballots will increase the likelihood that there will not be an official winner announced on the night. The process is likely to extend beyond Tuesday night and if the result is contested, this process will likely be prolonged further. A divided result either way could see some disruption for markets due to lowered expectations for stimulus and increased ambiguity over the policy process for the next four years.
The US Fed FOMC will hand down its policy decision on Thursday and there is no expectation for a change in stance at this stage. The economy is rebounding, albeit unevenly, but infections continue to rise to new peaks, possibly dampening progress. Last week the Fed adjusted its Main Street Lending program – reducing the minimum loan size to $100k and reducing fees to encourage smaller businesses to use the facility. https://www.federalreserve.gov/newsevents/pressreleases/monetary20201030a.htm
The RBA will meet on Tuesday and market expectations of a rate cut to 0% has held steady at 84% for the last week (source: https://www2.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker ). From the minutes of the last RBA meeting, the Board noted that it expected more traction from further easing with states coming out of lockdown. It is also possible that further changes to the Term Funding Facility will be announced (expanded) – placing possible further downward pressure on mortgage rates in Australia.
The BoE also meets this week – the two key issues will be the Brexit trade agreement (no ratified agreement) and a new month-long lockdown for England. An announcement is expected on the status of the Brexit trade negotiation on Wednesday or Thursday this week – as more intensive negotiations continue in Brussels.
Key data points this week include:
US – Non-farm payrolls and ISM manufacturing and services PMI’s for Oct will be the key data focus.
The final global PMI’s for Oct will be released. Europe PMI’s for Oct are only starting to reflect the impact of restrictions on trade, especially for services.
US Fed purchases of Treasury securities will increase this week. Last week, purchases were lower at around $8bn and this week, purchases will increase to the $20bn benchmark. Purchases of MBS remain elevated. Last week purchases totaled $28bn and this week purchases are expected to reach $32bn, well above the $20bn benchmark.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $529bn in ST Bills, Notes, and Bonds this week, raising approx. $76bn in new money.
With progress on stimulus stalled until after the election result, the current pace of new money raised is running below the $1.2tr estimate for the quarter (38% of the quarter and 11% of the estimated net cash to be raised for the quarter). The US Treasury cash balance remains elevated at $1.65tr (Wed 28 Oct level).
This week, approx. $28bn in Bills will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
