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Weekly Fundamental Bulletin: US Elections, ISM & NFP

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Last week’s highlights

German Ifo weakens in October

The latest data from the German Ifo institute shows that business sentiment fell in October. This reflects concerns among businesses amid the rising number of Coronavirus cases dampening growth.

The Ifo business climate index fell to 92.7 in October after a revised 93.2 from the previous month. The decline was the first in nearly six months.

Economists had forecast that business sentiment would fall to 93.0. The Ifo’s current conditions index rose more than forecasts from 89.2 in September to 90.3 in October.

Durable goods orders rise more than forecast in September

The latest figures from the US Department of Commerce showed a rebound in monthly durable goods orders.

Reflecting a rebound in orders for transportation equipment, headline durable goods orders rose by 1.9% in September. This follows a 0.4% increase in August, and forecasts had been pointing to a 0.5% increase for the period.

Durable goods orders for transportation equipment surged 4.1% in September following 0.8% in August. Orders for non-defense capital goods excluding aircraft rose 1.0% on the month. This was slightly down from the 2.1% increase from the previous month.

Australia consumer prices rise 0.7% on the year

The latest consumer price index data from Australia showed that headline inflation rose 0.7% on the year. This was during the third quarter ending September 2020.

The data was in line with the median forecasts and reverses a 0.3% decline in the second quarter. On a quarterly basis, Australia’s inflation rose 1.6% which beat expectations of a 1.5% increase.

This also almost reverses the 1.9% decline from the previous quarter. The RBA’s trimmed-mean CPI rose by 0.4% during the period and 1.2% on the year.

US economy rebounds in the third quarter

The preliminary GDP report from the United States showed that economic activity rose more than expected during the three months ending September 2020.

Official data from the commerce department showed that real gross domestic product jumped 33.1% in the third quarter. This reversed the 31.4% decline in the second quarter.

The data also beat estimates of a 31% increase. The gains come on the back of consumer spending which rose by 40.7% during the period, reversing the 33.2% decline from the previous quarter.

ECB keeps rates steady but signals December stimulus

The European Central Bank left its monetary policy unchanged at its meeting last week. However, as widely expected, the bank announced that it will come up with new stimulus measures in December.

This decision comes as Europe is suffering due to the second wave of the pandemic. The ECB’s statement said that it would assess the incoming information and prepare an adequate stimulus package accordingly.

The ECB’s decision comes even as the third-quarter GDP in the eurozone saw a big rebound.

Upcoming Economic Events

US elections to bring a lot of volatility to the markets

The US general elections will dominate the headlines this week. Americans will get to vote on November 2nd to elect the 46th President of the United States.

However, unlike previous elections, the results may not be announced on election day itself. This is largely due to the pandemic pushing many voters to cast their ballots via mail.

The tight race between Trump and Biden could, therefore, extend uncertainty for a couple of days more. This uncertainty will no doubt impact the markets on the whole.

RBA poised to cut rates this week

The Reserve Bank of Australia will be holding its monetary policy meeting this week. The central bank is widely expected to cut interest rates.

This includes the cash rate, the three-year bond rate, and term funding facility. This is likely to be a 15 basis point cut, bringing interest rates in Australia to a new historic low of just 0.10%.

Expectations of the cut began building after the central bank took a more dovish tone in the previous meeting. The RBA will also be releasing its November statement on monetary policy later in the week.

BoE to expand bond purchases

The Bank of England officials will be meeting this Thursday. The broad consensus is for the BoE to expand its existing quantitative easing war chest.

Expectations are for the BoE to add an additional 100 billion to its current QE purchases, pushing it to 845 billion. However, the committee could see some dissenting members.

The central bank will also be looking to downgrade its GDP forecasts at this week’s meeting. However, the MPC is unlikely to make any changes to interest rates.

While there has been talk of negative interest rates, economists do not see this happening at this week’s meeting.

Fed meeting and payrolls data mark the tail end of the week

The FOMC will be holding its monetary policy meeting this week. Heading into the event, investors expect no changes to the interest rates or the Fed’s QE purchases.

Given that Fed officials have urged the government to spend more money, it is unlikely to see any new easing measures. But the recent failure by the US Congress to agree on a stimulus bill remains a big disappointment for the central bank officials.

Moving on, later in the week, Friday’s payrolls will be another big-ticket item. Forecasts point to the US unemployment rate falling from 7.9% to 7.7% in October.

The monthly non-farm payrolls are forecast to add 600k jobs during the month.

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