Monday’s Bullseye: 2 November 2020

Here is our week ahead preview for the week commencing 2 November 2020.

Most of the attention will be on US election – and rightly so
Three central bank policy decisions: Fed, RBA and BoE – all likely to talk up the prospects of more stimulus, especially the latter given deteriorating virus situation in UK and Europe
US jobs report and global PMIs in focus for data watchers

It has been an ugly week for risky assets and with the weekend fast approaching, do not be surprised if we were to see further falls heading into the close on Friday (when this report was written). Sentiment towards stocks, crude oil and risk-sensitive currencies turned decisively negative owing to concerns about the pace of the economic recovery, after a rapid rise in new virus cases saw many European countries ramp up restrictions and France went into a lockdown. Meanwhile the delay in US stimulus talks added to the selling pressure. The US has also been dealing with a surge in coronavirus cases, and there are some concerns that if the world’s largest economy goes into some form of a lockdown, then the situation could get even uglier for risk assets. Oh, and there is the small matter of the presidential election uncertainty, too…

Look Ahead: 2020 Presidential Election

Indeed, the main macro event in the week ahead is without a doubt the US presidential election on Tuesday. Unquestionably, the outcome of this coming election will have consequences far beyond America’s borders. Another key risk is not just the outcome, rather the ballot counting could drag out the results for weeks.

With more than 66 million Americans having cast their votes early, the election is shaping up to be unlike any other, possibly resulting in a record turnout. This may be a sign of heightened voter enthusiasm as we inch closer to polling day on Nov. 3, with Donald Trump trailing behind his Democratic challenger Jo Biden in the national opinion polls.

In 2016, many analysts had predicted that the stock markets would crash in case of a Trump victory. But they rallied instead, not least because of Trump’s corporate tax incentives. What will the 2020 election deliver? Will shares of tech companies decline with a Biden victory? Are investors scared by his tax policies? Would a Trump win drag down clean energy shares, and would the trade war with China escalate? Are we heading for a contested result, just like in 2000? And which party will dominate the Senate and the House of Representatives?

With so many possible scenarios, it is really difficult to predict what the markets would look like in the second half of the week. But judging by the price action this week, I would think the start of next week could be another bad one for risk assets. Investors will still be concerned about the fallout from the second wave of the virus and with the election result not out until at least Wednesday, there will be little incentive for market participants to pile back into stocks, I would think. There is also concerns about the technology stocks which took a beating on Friday, following ill-received earnings results from the tech giants on Thursday night. The fact that some of these tech leaders raised concern about the outlook for the sector will not go unnoticed by forward-looking financial markets. Investors have until now been piling into growth stocks but going forward some will undoubtedly think twice about investing in these markets without first witnessing a sizeable correction. So, there is a possibility that the sector may extend its correction further, as froth is removed from some of technology names which have disproportionately surged higher since lockdown in March.

By the way, you may wish to register for our live pre-election webinar Tuesday, Nov. 3, where I will join my other global market analyst colleagues to discuss key markets, scenarios, and levels that we will be watching. To see our full webinar schedule, including a Non-farm Payroll webinar, click here.

Central bank meetings and NFP other major events

In the week ahead, as well as the S election, we will have plenty of macroeconomic data and three major central bank meetings to look forward to.

The three central bank meetings will be from the Reserve Bank of Australia, Bank of England and the US Federal Reserve. None of these banks are expected to loosen their belts further at their respective meetings in the week ahead. However, judging by the very dovish assessment made by the European Central Bank in the past week, don’t be surprised if the BoE also provides such dovish forecasts for the UK economy and in doing so signal its intension to loosen monetary policy further to combat the economic impact of the second wave of coronavirus.
The global manufacturing and services PMIs will provide us with leading indication of economic health, or lack thereof. Businesses tend to react quickly to market conditions, and given the new lockdowns, their purchasing managers, some of whom hold perhaps the most current and relevant insight into the company's view of the economy, will provide us with useful information about whether and how the manufacturing and especially services sector activity has been impacted.
The US jobs report will be the main data highlight on Friday, and we will cover that in greater detail in the week ahead. Economists are expecting another 600 thousand job gains, following a disappointing 661 thousand increase the month before when 900 thousand was expected. If jobs growth slows further, then all else being equal, this should be negative for risk assets, although that is a big assumption to make as everything else will be far from equal from the middle of the week onwards!

Economic data highlights

Saturday: Chinese Manufacturing PMI (Saturday)

Monday: Global Manufacturing PMIs – final versions for EZ and UK and ISM for US

Tuesday

Reserve Bank of Australia policy decision
US Presidential Election

Wednesday

New Zealand employment report
Global Services PMIs – final versions for EZ and UK and ISM for US
US ADP jobs report
Potential outcome of US Election?

Thursday

Bank of England and US Federal Reserve policy decisions
Data: Eurozone retail sales, German factory orders, UK construction PMI and US jobless claims

Friday: US nonfarm payrolls and Canadian jobs reports

Featured chart: Dow Jones

Unlike the S&P 500 and the Nasdaq, the Dow has not created a new record high above its pre-lockdown high. Thus, it is leading the indices lower. It has also created a few lower lows. If the 200-day moving average does not hold, then look out below: