Final US Presidential debate changes little to the outlook

-->Final US Presidential debate changes little to the outlook       

• USD: The final US Presidential debate before the November 3 election last week sees few takeaways for markets with discussion of the National Security topic on Russia and China among the main highlights. Though China is discussed, there is little guidance on how US-China relations would look under either administration. Biden repeats that he would get China to "play by the international rules" but offers few specifics. The topic of fiscal stimulus is raised with Trump suggesting the delay is due to the House Democrats. Interestingly, little mention is made about the likelihood that Senate Republicans would vote on the bill being negotiated between Pelosi and Mnuchin. Citi analysts still expect no fiscal bill to pass both chambers of Congress before the November 3 election.  

• USD: With 48.5 million Americans having already voted (35% of the turnout in 2016), this final debate was not expected to change expectations for the election results. Nevertheless, Biden's lead appears to marginally narrow according to some national polls though he still likely remain well ahead. That said, it may be useful to remind us that national polling got it wrong in 2016.          

Data releases Friday             

• USD: US preliminary Markit PMIs in October remain within expansionary territory with Manufacturing PMI largely unchanged at 53.3 while Services PMI increases from 54.6 to 56.0. But, employment subcomponents drop slightly for both, though still elevated at 53.1 in services and 51.3 in manufacturing. Citi analysts see the elevated PMIs pointing to still-strong business demand.    

• EUR: Euro zone’s Composite euro zone PMI declines -1pt to a four-month low of 49.4 (Citi: 51.6, Mkt. 49.2); Services PMI comes in -1.8pt lower to a five-month low of  46.2 (Citi 49.2, Mkt. 47.0) but manufacturing PMI rises -+0.7pt to 54.4 (Citi 54.7, Mkt. 53.0) though not enough to offset the larger decline in services sector activity impacted by fresh Covid-19 worries. Germany is least impacted (benefiting from a greater weight of manufacturing and still low new Covid-19 cases) while France, with its greater reliance on services and high pace of new infections sees a 2nd successive drop.  

• NZD: NZ Q3 CPI rises 0.7%, in-line with Citi analysts forecast but below 0.9% consensus and below RBNZ’s official forecast for 1.1%. The result represents a substantial undershoot of the August MPS view. Ahead, NZ inflation could pickup with restrictions eased, but is unlikely to derail the introduction of a “Funding for Lending Program (FLP)” this year and ahead of NIRP next year.

• GBP: UK flash services PMI for October prints at 52.3 (Consensus 53.9, Citi 52.1), down on levels in September (56.1). Manufacturing however is stronger, with a flash PMI print of 53.3 (Citi 53.8 and Consensus 53.1). Citi analysts expect further weakness over coming months due to the Covid spike. 

• GBP: UK retail sales rip further – retail sales excluding auto fuel grow 1.6% MM in September, substantially stronger than Citi or consensus (Citi 0.5%, Consensus 0.5%) and the index including auto fuel is up by 1.5% MM, with slight upward revisions to growth in August. Well above normal levels – YY retail sales (ex. fuel) are now 6.4% higher than levels in the same month last year – strongest Y/Y growth rate since 2016. The index, including auto fuels, is also now 5.5% above February 2020 levels.

• GBP: Trade agreement reached between UK and Japan - the deal broadly replicates existing EU - Japan trade deal but includes additional chapters on digital trade and different agricultural quota regime. UK also strikes a provisional trade deal with Norway, Switzerland, Iceland and Liechtenstein.   

Week Ahead

• USD: US GDP Annualized QoQ – Citi: 32.4%, median: 31.8%, prior: -31.4%; Personal Consumption – Citi: 37.1%, median: 38.7%, prior: -33.2%; Core PCE QoQ – Citi: 4.0%, median: 4.0%, prior: -0.8% - US real GDP should bounce-back a substantial 32.4% annualized in Q3 following record drop in Q2.  

• USD: Conference Board Consumer Confidence – Citi: 100.4, median: 101.7, prior: 101.8 – Citi analysts expect a modest pullback in consumer confidence, reflecting a renewed increase in virus cases or possible frustration with lack of Congressional agreement on a new fiscal stimulus package.   

• EUR: ECB meeting – Citi analysts expect no decision of substance taken (though expect the Governing Council to hint at the likelihood of policy easing in December by increasing the overall residual envelope of PEPP (by a minimum of EUR500bn) and its timeline (by another six months).

• EUR: German Ifo Business Climate, Oct Forecast: 91.5 Prior: 93.4 09:00 Ifo Expectations, Oct Forecast: 93.0 Prior: 97.7, Ifo Current Assessment, Oct Forecast: 90.0 Prior: 89.2 - 2nd wave of Covid-19 infections notwithstanding, Citi analysts do not expect a similar deterioration seen in April.

• AUD: Australia Q3 CPI; Citi headline CPI forecast QoQ; +1.3%, Previous; -1.9%, Citi headline CPI forecast YoY; +0.4%, Previous; -0.3%, Citi underlying CPI forecast QoQ; 0.1%, Previous; -0.1%, Citi underlying CPI forecast YoY; 1.1%, Previous; 1.2% - A modest pickup in underlying inflation but with few implications for the RBA. 

• CAD: BoC meeting – Citi: 0.25%, median: 0.25%, prior: 0.25% - Citi analysts do not expect any change. Citi’s base case is next step will be to remove accommodation (slow pace of asset purchases).

• CNY: China Manufacturing PMI October 51.5 -- 51.5 – Citi analysts expect manufacturing PMI to be largely flat around 51.5 in October.    

This is is an extract from the Daily Currency Update, dated October 26, 2020. Please approach a Citigold Relationship Manager if you would like more information.