The third quarter of this year is coming to an end, and this year is already like a real blockbuster, filled with a race for a coronavirus cure or vaccine, explosions and major fires in different parts of the world, presidential elections in the U.S. and possible Braxit without a deal.
This week will be much more full of news than last year. So it is worth paying attention not only to the economic calendar, which has enough volatile releases, but also to the news background. After all, tomorrow (Tuesday) will be the first debate of the leading candidates for President of the United States Joe Biden and Donald Trump, and a surge of volatility is expected.
From economic news it is worth paying attention to the data on European inflation on Wednesday, the final U.S. GDP estimate for the second quarter and preliminary data on the U.S. labor market from the ADP. Besides, on Tuesday, on Wednesday, the politicians of both regulators, both from ECB and Federal Reserve, will speak. On Thursday, we will learn about business activity, as well as the unemployment rate in the EU, after which the summit of EU leaders will begin. It will certainly raise the issue of Brexit, which we will talk about separately. Later on Thursday, he will publish data on business activity and the United States.
European inflation should be singled out separately. For the first time since May 2016, August inflation in the EU was negative. Therefore, there is no doubt that the ECB will closely monitor the indicator. The EU economy is showing signs of weakening against the background of the second wave of covid-19 and concern is growing. ECB board member Fabio Panetta warned that inflation remains "uncomfortable" below the European regulator's target. Against this backdrop, rumors have emerged that the ECB may lower interest rates into the negative zone next year.
The U.S. labor market data will be released at the end of the week, as the first Friday of the new month suggests. Expectations are rather moderate, so they may well come true. The number of workers outside the agricultural sector is expected to increase by 850,000, wages to increase by 0.1% compared to the same period last year, and the unemployment rate to decrease by 0.2%. In general, such data should support not only the U.S. dollar itself, but also the U.S. stock market.
It is worth recalling that the U.S. government has not yet approved a package of assistance to the population and business, it seems that there will be no deal before the presidential election. A new outbreak of covid-19 in Europe and the U.S. is causing doubts about the nearest recovery of the world's leading economies. If the U.S. labor market turns out to be weaker than expectations, it will increase anxiety.
Britain seems to be moving towards Braxit without a deal in three months, but among London traders there is still no panic aimed at dumping British assets. It is more like deja vu, when there were the first signals about a possible exit of Britain from the EU without a trade agreement.
After the UK threatened in September to abandon part of its divorce deal with the European Union, the market estimates the probability of exit from the EU trading bloc without any alternative agreements in late 2020 at 40-45%. The chances are quite high.
However, as the four-year political crisis between London and Brussels enters its final stage, investors and companies are not in as much of a hurry to sell the pound or insure themselves against volatility as they have in the past.
"Fatigue with Braxit is definitely present. The Coronavirus has crushed Braxit. The level of participation is relatively low, and in general, participants follow their interests," says Ian Tue, a pound trader at Barclays in London.
According to Refinitiv, weekly cash turnover rose 35% in the third week of September compared to late August. But it is below most weeks of September and October in 2018-2019, when the fears of Braxit without a deal increased for the first time.
"The market is very tired of the political process," Simon Manuoring, head of currency trading at NatWest Markets, added, and "Looking for something more specific" before clients hedge or open speculative positions.
Obviously, the pound in the risk zone, even an increase in the number of put options on the fall of the pound says so, but this is not enough for the market at the moment. Perhaps the data on British GDP on Wednesday and the EU summit on Thursday will bring clarity to the big picture.
The growth of daily coronavirus diseases is increasing, now their total number is approaching 33 million. The most affected countries are densely populated. Against this background, it is logical that fears about future demand for raw materials are growing.
The speed at which the virus spreads is a major problem for both health officials and global investors.
Russian Energy Minister Alexander Novak said that the world oil market had been stable over the past few months and the balance of supply and demand had recovered, but warned about the second wave of coronavirus.
Despite the efforts of the Organization of the oil-exporting countries and their allies to limit production, more and more oil is being exported from OPEC producing countries - Iran and Libya.
BNP Paribas analyst Harry Chilinguyrian commented on this issue: "The growth of production is modest. Even if Libya quickly grows production to the level of 1 million barrels per day that existed before the blockade, in the short term crude oil will not be able to quickly find buyers".
UIC Secretary General Mohammad Brakindo said on Sunday that commercial oil reserves in OECD countries (Organization for Economic Cooperation and Development) are expected to be only slightly above the five-year average in the first quarter of 2021 and then fall below that level.
It is clear that these comments are only appropriate in the current market conditions. If the second wave of coronavirus disease is stronger and more devastating for the economies, demand will be severely affected, followed by the price of black gold. Therefore, the speed of new cases can be identified as one of the main drivers of oil prices in the short term.