Market Mondays #25

Last week in the financial markets: 

  • In their final debate ahead of the U.S presidential election, Trump and Biden struck a more civil tone than in the chaotic first debate
  • Goldman Sachs will pay a record $2.3 billion foreign bribery penalty in the U.S. and plead guilty for its role in the plundering of Malaysia’s 1MDB investment fund
  • The major benchmarks ended mixed, as investors reacted to stimulus negotiations while monitoring third-quarter corporate earnings reports
  • Hopes for a near-term stimulus deal lifted Treasury yields through most of the week, with the yield on the benchmark 10-year Treasury note marking its highest level (0.87%) since June 9.
  • The US Department of Justice has accused Google of suppressing competition in internet search in a lawsuit that marks the beginning of a landmark antitrust case
  • The Turkish Lira hit a new record low 
  • Britain and the European Union have a good chance of striking a deal on future relations, the British government’s Northern Ireland minister Brandon Lewis said on Sunday
  • Carlyle Nears $2.4 Billion Deal for Siemens’s Flender Business

Driving forces for the weeks ahead: 

Will the ECB signal a step up in bond buying?

Over the recent weeks, a second wave of coronavirus infections swept across Europe, with France reporting more than 50 000 more Covid-19 cases a day on Sunday. Along with deflation, the recent wave threatens to drag into a double-dip recession as talks on the EU’s recovery fund have stalled and time is running out for a post-Brexit deal. 

Furthermore, we need to take into account the uncertainty in financial markets in the coming weeks due to the US election which puts the ECB into a rocky few months ahead. 

Christine Lagarde

So far Lagarde is expected to keep the ECB’s main monetary policies on hold while preparing for more easing in December. 

“The ECB could pave the way for more stimulus in December without showing its cards,”

said Carsten Brzeski, economist at ING.

The ECB’s governing council’s more conservative members will argue that since there is still more than €750bn of firepower left in the ECB’s emergency €1.35tn bond-buying programme the bank does not need to act urgently.

Most economists predict the ECB will expand its bond-buying plans by as much as €500bn in December when Morgan Stanley analysts also expect it to extend a programme of ultra-cheap loans for banks at rates as low as minus 1 per cent until the end of next year according to the Financial Times.

The ECB is also likely to extend the emergency asset-purchase operation (PEPP) by six months through the end of 2021 according to Bloomberg

Overall, the ECB will have to step in earlier or later to support the struggling European economy, the size, however, will be heavily dependent on how the second coronavirus wave and the US election plays out.  

What else we’re reading: 

  • Will the ECB signal a step-up in bond-buying is on the horizon? (FT) 
  • Stock exchanges prepare to activate their Brexit contingency plans (FT) 
  • Chris Hohn blasts BlackRock and Vanguard over climate change (FT) 
  • A Wall Street Guide to Trading Europe Ahead of U.S. Election (Bloomberg) 
  • Is tech getting more competitive? (The Economist) 

This week’s key events and data releases

Monday: Germany Ifo business climate October

Tuesday: US durable goods orders, Microsoft Earnings

Thursday: Q3 US GDP, Japan Oct consumer confidence index, EU Oct Economic Confidence, Germany unemployment rate

Friday: Eurozone September unemployment rate

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