Major events of the upcoming week
The market continues to closely monitor the spread of the coronavirus pandemic and its impact on economic activity in key regions of the world. The main blow still falls on the United States and Europe. Despite the strengthening of quarantine measures, the number of cases continues to grow steadily. Last week in the United States, Germany and several other countries, new anti-records were reached for the number of new infections per day.
Quarantine measures are gradually slowing down economic activity in the regions. Last week, the US reported an increase in the number of applications for unemployment benefits. More than 20 million people in the country receive this benefit. Against the background of a worsening epidemiological situation, the pressure on the labor market will only increase.
In the coming week, the market will focus on the publication of interim data on manufacturing and services PMI in the US and Europe. The indices will show the real state of affairs in key sectors of the economy and will help assess the impact of new quarantine measures on economic activity. It is possible that the data, which will be published on Monday, will set the tone for trading for the entire coming week.
Germany - November Preliminary Manufacturing and Services PMI Release
After the quarantine measures were lifted in May, the German economy showed a good pace of recovery. Over the five months, the PMI of the manufacturing sector recovered from 34.5 to 58.2 points, and in the service sector from 16.2 to 55.6 points. It's important to note that any value of the indicator over 50 indicates an increase in activity and expansion of production.
The new wave of the coronavirus pandemic has slowed the pace of economic recovery in Germany. The new tough quarantine measures primarily hit the service sector, which remains more vulnerable in the current situation. As early as September, activity in the services sector began to decline, and in October the indicator dropped again below 50, indicating a decrease in activity.
It is obvious that the new strict quarantine measures will significantly affect the activity of key sectors of the German economy. The service sector will suffer the most. Experts predict a decrease in the indicator from 49.5 to 47.0 points. In the manufacturing sector, a decline is expected from 58.2 to 56.3 points. In our opinion, the actual values may turn out to be significantly lower than the forecast indicators, which will become a strong factor of pressure on the European currency.
USA - FOMC minutes published
At the last meeting, the regulator kept the main parameters of monetary policy unchanged. At the same time, the Fed noted the need to increase stimulus measures against the backdrop of an increasing negative impact on the economy of the coronavirus pandemic. In the minutes published on Wednesday, investors will first of all look for hints at the Fed's inclination to further ease monetary policy amid the pandemic and the continuing uncertainty about the new program to help the US economy. Negotiations between Republicans and Democrats in the face of political uncertainty may drag on until the end of this year and the beginning of next year, so the Fed may start acting independently, expanding the parameters of the asset repurchase program. Signals about possible easing of monetary policy from the FRS may increase pressure on the US dollar, which has been in a very vulnerable position in recent weeks.
EU - publication of ECB minutes
Investors have not expected surprises from the ECB for a long time. The long period of soft monetary policy significantly limited the range of response tools. The most significant instrument in the hands of the ECB remains the asset repurchase program. It is obvious that the situation when the ECB can go to cut interest rates has not yet arrived. Therefore, investors will look in the ECB minutes for signals about a possible expansion of the asset repurchase program.
In our opinion, the ECB protocols will have a very restrained impact on the dynamics of the movement of the European currency.