Citi

  • Expectations have swung from concerns around a contested election to market confidence of a victory by candidate Biden and possibly a “blue sweep” with Democrats taking control of the Senate and holding on to a House majority. CitiFX Strategy agrees that a Biden victory appears likely now and with a medium-term reflationary dynamic. However, they are more skeptical of a near-term fiscal deal and still think that the Senate outcome is too close to call.
  • CitiFX Technicals’ Tom Fitzpatrick is also optimistic, noting that there are over 3 weeks to the election and the sentiment of a clean sweep is growing. “That view and this timeline create the perfect environment for a momentum trade over the next 2-3 weeks or so in my view.”
  • USD is broadly flat in Asia with little to report in the way of material breakthroughs over the weekend. Locally, the country naturally continues to watch the US election, but fiscal remains on the agenda too. As for the latest, Treasury Secretary Mnuchin headed into the latest talks on Friday with a White House offer of USD 1.8tn in economic stimulus, up from USD 1.6tn earlier in the week. House Speaker ultimately rejected this increase citing ongoing differences, but note Trump comments last week that he now wants a package bigger than what both sides are currently debating – this is likely to face Republican pushback though. Discussions are set to continue this week.
  • EUR is seen flat in Asia at 1.1820 at the time of writing. This week, CitiFX Strategy is neutral EURUSD short-term as markets price out some post-election uncertainty and fiscal discussions continue. But the team retains its medium term bullish bias and no longer see major further dips. The major event this week will be EU Summit on Thursday/Friday with a focus on Brexit and the EU Recovery Fund and Budget, even though we don’t expect major breakthroughs. In the meantime, note a range of ECB speak today, including President Lagarde who speaks at an IMF event.

RBC Capital Markets

  • Week ahead: The "blue wave" scenario has dominated market direction recently, and the biggest risk to it would be a narrowing of the US election polls. The ongoing US fiscal stimulus drama would have an impact on markets if there were to be a surprise agreement on a comprehensive pre- election package. The US calendar this week includes the start of the Q3 earnings season, CPI, and retail sales (see USD). Other key data releases are UK employment report (Tuesday), Australia employment report (Thursday), and China financing/credit data (see CNY). PM Johnson's selfimposed trade agreement deadline of the EU summit is looming ahead (see GBP). The IMF/WB annual meetings feature several central bank speakers, including ECB's Lagarde, Riskbank's Ingves and BI's Perry Warjiyo. USD: We look for higher headline CPI at 1.4% y/y, and core CPI at 1.8% y/y (Tuesday). Headline retail sales (Friday) should be boosted by strong vehicle sales in September, and we look for 1.3% m/m on the headline.
  • EUR: Germany ZEW survey (Tuesday) and final euro area September CPI (Friday) are on tap.
  • GBP: We anticipate unemployment to rise to 4.3% in the labour market report (Tuesday). The European Council summit will focus on Brexit (Thursday-Friday). The two main topics that have hobbled the talks all year remain the key sticking points: fishing rights and the EU's ‘level playing field’ provisions covering state aid. Even if no agreement is reached this week, talks are likely to persist through October if both sides can agree the broad path to a deal. CNY: An eventful week for Chinese data with trade balance (Tuesday), CPI (Thursday), and September new loans and aggregate financing (by Thursday), plus a market that will be more sensitive to the near-term daily CNY fixings.
  • SGD/KRW: Central bank meetings in South Korea and Singapore (both Wednesday) are expected to keep policies unchanged, but there is more of a dovish risk from the MAS than the BoK. The Singapore Q3 GDP report (Wednesday) will be the first for the region.
  • AUD: RBA Governor Lowe is scheduled to speak at an investment conference (Wednesday). We expect the September employment report (Thursday) to reflect some further softening driven largely by VIC’s return to harsher lockdown restrictions from the beginning of August. Adjusting weekly payrolls for various lags and seasonal effects suggest we could even see a drop in employment of over 100k, though we have stuck with a more conservative -70k forecast. We also forecast a rise in the unemployment rate to 7.2%.
  • CAD: There are no major data releases scheduled in Canada this week, with just September existing home sales (Thursday) on the docket, followed by August international securities transactions and manufacturing sales on Friday. The advance estimate from StatsCan suggests a 2% decline in manufacturing sales in the month. The positive risk backdrop continues to weigh on USD/CAD after last week’s bearish trend reversal below 1.3280, with support at 1.3119 and 1.3076, and resistance at 1.3180 and 1.3229.

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