Weekly Market Outlook

The highlights for this week are almost evenly distributed across the next five business days. Monday is when the global manufacturing PMIs for October are due to be released. On the next day, all eyes will be firmly fixed on the US presidential elections. On Wednesday, market participants will be awaiting the global services PMIs for October. Thursday attracts the attention to the meetings of two key central banks: the Fed and the Bank of England. The most important figures not just for the week but for the entire month will come out on Friday, when the US Labor Department will release its employment report.

Global October Manufacturing PMIs (Monday)

Unlike the services sector, manufacturing has reacted with more resilience to the pandemic. As data of flash PMI for Germany and France show, these two countries’ economies have remained solid. But with the prospects of more massive restrictions and lockdown, economic activity is likely to slow down by the year end. In China, manufacturing activities have already regained the levels they reached at the beginning of the year, and it looks the trend is going to continue.

US Presidential Election (Tuesday)

The eagerness to learn the name of the next US President is rising globally, and there are a couple of days until the outcome becomes clear. What is more important, indeed, is not the name, Donald Trump or Joe Biden. What really matters is who will control the Senate: the Democrats or the Republicans. If the Democrats win that control, and also control the House of Representatives, that would mean getting the full grip on the US economy policy levers. Now the Republicans are a majority in the Senate, and they can block Biden’s actions if he is elected.

Global October Services PMIs (Wednesday)

The expectations for the global services PMIs are not set high. Recent flash PMI figures for France and Germany indicated contractions in the past month. Weak numbers are anticipated for Spain and Italy too. With the EU having yet to decide about the fiscal stimulus for coping with the pandemic, and with no agreement reached about grants for Italy and Spain, the situation is likely to deteriorate further in the next few months. The US and China are expected to offer somewhat positive data.

Bank of England Rate Meeting (Thursday)

The tightening of restrictions and the resulting decline in economic activity will most certainly take its toll on the UK economy in the last quarter. The prospect of negative rates has been a subject of heated discussions, in spite of the fact that such a move risks doing enormous damage to the country’s financial sector. At this stage, the Bank of England is not likely to opt for negative rates. At this point, the institution is widely expected to make a revision of inflation estimates and GDP for this year and for the next one.

US Fed Meeting (Thursday)

In the reality of a second coronavirus wave and with the political deadlock with respect to a second stimulus package, central bankers had hard times at their last meeting. The forthcoming US election will remove one of the obstacles to further policy action, and the political situation in the US will become clearer by this week’s end. Depending on the result of the election, the Federal Reserve will be able to lead the US policy response. And, no matter what the result, the central bank will also have the task of acting as a bridge to further fiscal measures.

US Employment Report (Friday)

One of the indications of economic rebound in the US has been the decline of unemployment rate, to 7.9% in September, compared to April’s 14.7%. In October, a further slight decline to 7.7% is favored by the majority of analysts. The continuous slump in the number of weekly jobless claims has also pointed to solid business activity in the US.

Observing the unemployment data alone, however, can be misleading. Labour force participation is 2%, which is lower compared to the year start. The increase in jobs in the last six months is still insufficient to cover the 21.5 million jobs lost in March and April. In fact, only half of the number has been recovered, according to the September report.