Investors Eyeing Three Threats

October 22, 2020

The uncertain U.S. election outcome now just twelve days away continues to have markets on tenterhooks. The final Trump-Biden debate is tonight at 21:00 EDT. U.S. Justice Department officials have found evidence of attempted cyber interference in the result by Iran and Russia.

Worsening Covid-19 trends are a second source of investor anxiety. More than 400k new cases have been identified globally in the past 24 hours, including 64k in the United States. The pace of deaths also picked up in the United States.

A third concern is the continuing failure of U.S. government officials to compromise on an agreement to augment fiscal support to counter the pandemic’s drag on economic growth. Governor Lael Brainard is the latest Federal Reserve official to point out that the economy is endangered by this failure to act.

Risk aversion lifted the dollar overnight by 0.3% against the Australian dollar, Mexican peso, and sterling, as well as 0.2% relative to the euro, yen, and Swiss franc. The dollar price of gold dropped 0.5%.

Share prices are mostly down, with losses of 0.7% in Japan, India, South Korea, France and Italy, 0.8% in Germany and Spain, and 0.4% in Switzerland, China, and the U.K..

The ten-year British gilt yield climbed three basis points, but its U.S. counterpart is a basis point lower in futures trading.

Wednesday’s Fed Beige Book release revealed that the pace of the U.S. recovery decelerated to slight to modest since late August. Labor market tightness has been reported in several service sector activities due to worker reluctance to undertake person-to-person exposure with the virus still raging. The prospect of cooler weather is a further problem.

Central bank policy announcements today are scheduled in Sri Lanka, Turkey, Israel and Ukraine. So far, the Central Bank of Sri Lanka is the only one to have revealed its decision, which was to leave the Standing Deposit Facility Rate and Standing Lending Facility Rate at 4.5% and 5.5%, respectively. Earlier rate cuts in January, March, April, May and July had totaled 250 basis points, and that stimulus continues to exert downward pressure on market lending rates. Global growth prospects are “bleak” according to a released statement, which also observes a resilient external sector and in-target (4-6%) inflation. Covid cases have picked up lately in Sri Lanka and many other countries.

Dutch consumer confidence dropped two index points to a 5-month low in October. On-year comparisons of Dutch consumer spending have been negative for the past six reported months, but the 5.8% drop in August was the smallest in that sequence.

German consumer confidence heading into November printed at a 4-month low of -3.1. Such had recovered from -23.1 in May to -0.2 in August but remains far beneath the pre-pandemic 9.9 level seen last February.

Turkish consumer sentiment in October edged down to a 2-month low, while Danish consumer confidence that month rose to a 2-month high that at -6.2 still reflects significant fragility.

French overall business confidence settled by two index points to a two-month low of 90 in October, primarily reflecting a 5-point slide in the services sector to a three month low. Manufacturing dipped one point to a 2-month low as well.

Norwegian business confidence jumped from -17.4 in the first quarter to -9.6 in 2Q and +1.7, a 5-quarter high, in the third quarter. However, Norway’s jobless rate in the third quarter of 5.3% was the most since at least the start of 1997.

In Taiwan, however, a 3.78% jobless rate in September was its lowest since March.

Thailand’s January-September trade surplus of $20.6 billion was more than twice the size of the surplus of $6.2 billion a year earlier.

The monthly British industrial trends index printed 14 points higher in October at a 7-month high of -34, having bottomed last May at -62.

Aside from the U.S. presidential debate tonight and the aforementioned central bank interest rate decisions due later today, investors await the U.S. weekly jobless insurance claims report and monthly figures on existing home sales and the index of leading economic indicators. A preliminary estimate of Euroland consumer confidence is due, too, and the U.S. Senate Judiciary Committee plans a vote to send the confirmation of Amy Coney Barrett to the full Senate. Democratic senators on that committee plan to boycott the vote, but they represent a minority of the votes.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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