Weekly Market Outlook

This week, we call your attention to a few key events, most of which are concentrated in two days, Tuesday and Thursday. In the period Tuesday to Thursday, US banks’ Q3 data are to be released. On Tuesday, China is releasing its trade balance data. Expectations here are for high external demand and somewhat weaker, though fairly good, internal demand figures. On the same day, September’s UK employment figures will grab investors’ attention. Later on, in the day, the US is scheduled to report its CPI, which marked its highest rate of increase for the last five months in August.

The main highlight on Thursday is the next episode of the EU/UK saga, aimed at negotiating a mutually beneficial deal after Brexit. On the same day, the US jobless claims are likely to provide fresh evidence for the jobs market slight recovery. On Friday, all eyes will be on the US retail sales in the context of the first month without government support since the outbreak of the pandemic.

US Banks Q3 Results (Tuesday-Thursday)

The Covid-19 outbreak has been particularly painful for the US banking sector. Generally, banks’ trading departments have kept a decent level, given the market volatility surge. Banks, like JP Morgan and Goldman Sachs, which focused on financial markets trading did well. The revenue of the latter has in fact marked its highest level for the past several years.

With provisions for bad debt taken into account though, banks like Wells Fargo posted a quarterly loss. The major US credit institutions announced that they had allotted $25 billion for bad debt provisions in the first quarter. Then in Q2, they allotted nearly $34 billion related to credit losses. The lending sector also suffered, with margins getting narrower due to the rather low interest rates.

China September Trade Balance (Tuesday)

Lately, the Chinese economy has started to pick up. June brought a 2.2% rise in imports, which indicates a moderate internal demand in the country. Commodity prices, of course, have always been a factor which impacts the overall status. The strong exports apparently mean robust external demand. It should be kept in mind, however, that this may be due to the large-scale exports of personal protective equipment, of which China is the largest manufacturer. Perhaps what currently matters more are import figures, as they provide a clear picture of internal demand.

UK Employment Figures (Tuesday)

As the UK unemployment rate’s increase from 3.9% to 4.1% indicates, the coronavirus-induced  health crisis is taking its toll on the labour market. The numbers do not show the complete picture yet, because furloughed workers are not included. According to Rishi Sunak’s plan for the period after the furlough scheme, companies are to pay staff 55% of their normal wages, and the 22% top-up by the government will bring the earnings to 77% of their full amounts. The scheme is not exactly great news for employers, so the expectations are for a rise in unemployment rate after the end of the furlough scheme in late October.

US September CPI / Retail Sales (Tuesday/Friday)

August’s CPI rate rose to its highest since March, from 1% to 1.3%, thus beating the 1.2% forecast. The data clearly indicate that demand is coming back strong. US retail sales have started recovering in the past few months after their initial slump. The September figure is awaited with serious interest, as this has been the first full month in which no government support was paid out. The latest data show a drop in the unemployment rate, from 8.4% to 7.9%. Given the participation rate has declined too, however, the situation in the US labor market is perhaps not as good as it looks.

EU/UK Trade Talks (Thursday)

The negotiations on a Brexit deal have not yielded any positive results lately, although both the UK and the EU say that they are making progress. In reality, the looming differences have made it difficult for both parties to negotiate. As Boris Johnson had earlier stated, if no satisfactory deal is reached by 15 October, the British side will withdraw from the talks.  The prime minister’s statement might as well be just another tool for exercising pressure on the EU. If no deal is agreed upon, then the EU and the UK may start trading under WTO terms starting from January 2021.

US Jobless Claims (Thursday)

After the first few brutal months in the coronavirus hell, the US labor market has started to pick up. The latest initial jobless claims figures indicated a decline to 840,000 from 849,000: the lowest level since the pandemic kicked off. The metric has been keeping below 1 million already for six weeks. The counting claims report, which gauges the number of workers still getting unemployment benefits, declined to 10.97 million: the lowest level since early April.