Major events of the upcoming week
The upcoming trading week is likely to be the most exciting of all of 2020. There has never been such a concentration of important economic and political events this year. On Tuesday, a meeting of the Reserve Bank of Australia will take place, which is likely to end with an interest rate cut from 0.25% to 0.10%. On Thursday, the FOMC and the Bank of England will hold meetings, the results of which may lead to unexpected statements regarding possible changes in monetary policy in the future. Non-Farm Payrolls will be published in the US on Friday, which will show the degree of influence of the new wave of the pandemic on the US labor market.
The cherry on top is the US presidential election, which will officially take place on November 3. The voting results can radically change the balance of political forces in the country, since not only the presidential seat is at stake, but also 435 seats in the House of Representatives, 1/3 of the seats in the Senate and 13 seats of state governors. Due to the nature of the elections this year, the voting results may be known a few days later than usual, since due to the coronavirus pandemic, many Americans voted early (more than 80 million people), which will complicate the counting process. Therefore, financial markets will be in tension throughout the trading week. An abnormal increase in volatility is expected.
US – Presidential election
The election of the US President is always a very important event for the entire financial market. The policy of the head of the White House affects only the economic and political situation in the country, but also the situation around the world. Therefore, the results of the upcoming elections may radically change the trend in the movement of key financial instruments. But, contrary to the forecasts of many experts, it is almost impossible to predict the market reaction to the voting results in advance. On November 3, Americans will elect not only the president, but also a significant number of deputies to the House of Representatives and the Senate. Therefore, the market reaction will be determined by the results of all these votes.
According to most nationwide polls, Joe Biden is 84% likely to win the presidential election. There is a 64% probability that the Democratic Party will regain its majority in the Senate and with a 94% probability it will retain its majority in the House of Representatives. Thus, following the election results, the Democrats can get the so-called "trifect" - full control over the entire legislative process in the United States. Most experts agree that such an election outcome will have a very strong positive impact on the market, since the Democrats will be able to implement long-announced reforms, as well as adopt a large-scale economic assistance program in the context of the coronavirus pandemic. In this case, the US dollar is likely to lose some of its positions in the foreign exchange market.
United Kingdom – Bank of England meeting
The Bank of England is in a very difficult position. As the second wave of the pandemic develops, the UK's economic outlook continues to deteriorate, but the regulator's ability to respond is limited due to high Brexit uncertainty. Therefore, most experts agree that at the end of the current meeting, the Bank of England will leave the interest rate unchanged, and to provide additional assistance to the economy will increase the asset repurchase program from 745 to 845 billion pounds. The market reaction to this event is likely to be restrained, as the event is anticipated.
US – FOMC meeting
The market expects no surprises from the upcoming FOMC meeting. Most likely, the regulator will leave the main parameters of monetary policy unchanged. The main attention will be focused on the final press conference, at which the Fed may outline further plans for adjusting monetary policy. It is clear that Jerome Powell will stick to softer rhetoric, signaling the need for an increase in stimulus.
The main question is how the market will react to this? It is likely that traders will ignore this event, as they will be absorbed in analyzing the results of the US presidential election.
US – labor market report
The report on the US labor market traditionally arouses great interest among traders. This is one of the key indicators of the state of the US economy, which directly affects the policy of the FRS. In recent weeks, the United States has seen an increase in the number of cases of COVID-19, which leads to increased quarantine measures in individual states. Against this background, we can expect a deterioration in the main indicators of the US labor market report, but the final market reaction will very much depend on the outcome of the events we have discussed above.