The up-for-grabs US Political landscape looks set to directly influence market sentiment this week, with the all important Midterm elections taking place. As the voting results come in, traders will be assessing the shape-up of both the House and the the Senate, with market participants keeping close tabs on how the expected (according to the polls) growing Democrat party influence may negatively impact President Trump’s ability to push forward his domestic economic agenda.
Fresh in the memory of investors is the expectation-beating US Non-farm Payrolls report from Friday, which showed 250k jobs growth for the month of October, as well as evidence that wages were rising at their fastest pace since 2009. This would appear to keep the Federal Reserve on pace for a rate hike in December, however before then we have the US central bank meeting on Thursday this week although no action on Monetary Policy is expected this month.
While the US Dollar will be influenced by the Congressional elections and the interest rate outlook, ongoing rhetoric surrounding US-China trade talks ahead of the G20 summit could again be a significant driver of global market sentiment, particularly in light of mixed messages last week concerning whether a trade deal will ultimately be done by the world’s two largest economies. Look for equities and risk-sensitive assets to react swiftly to any news on this front over coming days.
The Euro had a solid week against the USD, and traders will be watching to see if this was the beginning of an uptrend or just a temporary pause from the selling. German Factory Orders (Tuesday) and German Industrial Production (Wednesday) will be watched closely, though the EURUSD rate looks set to take its trading cues mainly from US political developments and the broader direction of risk sentiment this week.
Elsewhere, traders of the British Pound will be watching Services PMI data (Monday) as well as GDP data (Friday), but it is the evolving path towards Brexit that again will again be the biggest factor in deciding which side of the 1.30 level that GBPUSD trades at the most this week. The Australian Dollar has rediscovered its mojo recently, having for the moment at least given itself some breathing room above the US$0.70 level. In terms of economic events, the RBA has an interest rate announcement on Tuesday (no change expected) as well as a Monetary Policy Statement on Friday.
Chinese economic data this week consists manly of Trade Balance data (Thursday) as well as CPI and PPI figures (Friday). But again, most of the focus will be on any further developments on trade talks with the US. Meanwhile, traders of the New Zealand Dollar (NZD) will be waiting for employment numbers due on Wednesday as well as the RBNZ interest rate announcement and statement on Thursday, with the market expecting the central bank to sit tight for this month.
The same key themes from October, namely concerns over US-China trade tensions as well as US interest rates, have carried forward to November and any developments on either front could again sway the market back and forth from risk-on and risk-off mode this week. But it is the outcome of the US Midterm elections that could be the Wildcard event in the midst of it all.
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