Main events of the upcoming week
The market tensions remain high. Investors are reacting negatively to reports of tightening quarantine measures in EU countries. Last week, German Chancellor Angela Merkel bluntly stated that the economy would not withstand a new lockout, so the authorities must make every effort to contain the second wave of the pandemic.
Naturally, as quarantine measures tighten, economic activity in the region will slow down. Earlier, the German economy minister stated that the maximum economic growth this year will be shown in the 3rd quarter. Due to the worsening epidemiological situation, the pace of economic recovery in the 4th quarter will significantly slow down.
Considering the above, a strong market attention this week will be focused on the publication of interim data on PMI of the manufacturing and services sectors in the EU and the USA. They will help assess the impact of the pandemic and new restrictive measures on economic activity in key sectors of the economy.
This week the market will also focus on macroeconomic statistics from China and political news from the United States.
China – 3-rd quarter GDP data
Over the past four months, the Chinese economy has been demonstrating high rates of recovery due to the growth of demand in the external and domestic markets. If the current growth rate is maintained, the Asian economy will be one of the first to recover from the crisis caused by the coronavirus pandemic. According to experts, in the third quarter, the annual growth of the Chinese economy may reach 5.2%. Data close to the forecast value may have a rather strong positive impact on investor sentiment.
In addition to Q3 GDP data, China's National Bureau of Statistics is to release industrial production and labor market reports on Monday. Most likely, the main indicators will be at or above market expectations. This could trigger an increase in major stock indices and a decline in the value of traditional defensive assets.
The United Kingdom – consumer price index
Recently, the Bank of England has repeatedly announced that it is exploring new monetary policy instruments to support the economy. Last week, Andrew Bailey announced that the regulator is considering using negative interest rates, but has not yet made a final decision on this matter. Inflation data traditionally has a very strong impact on the monetary policy of the Central Bank. A weaker CPI report may strengthen market expectations regarding a possible easing of monetary policy by the Bank of England. But, in our opinion, all these events will have a weak impact on the GDP, since all the attention of investors is now focused on Brexit.
US & EU - Preliminary Manufacturing and Services PMI Data for October
News of a worsening epidemiological situation in the EU and the US has significantly reduced investor risk appetite. It is obvious that new restrictive measures will slow down the pace of recovery in the world’s leading economies, and if the situation worsens, they may lead to a new recession. Interim PMI data will help assess the impact of the new wave of the pandemic on economic activity in key sectors of the economy. Experts expect an insignificant decrease in indicators, but, in our opinion, the actual values may be significantly lower than the anticipated values, which may exert strong pressure on all risky assets at the end of the current trading week. In the foreign exchange market, this will lead to a weakening of the euro and other G7 currencies and a strengthening of the USD.