21 to 27 September: First US Presidential Debate to be held on Tuesday

World trade volumes continued to recover in July, when global trade rose 4.8% MoM. According to the CPB’s report, ‘the rebound arises from the fact that in a lot of countries lockdown measures have been lifted.’ Consequently, world trade in goods in July recovered to a level 6% below the pre-pandemic levels. The recovery may carry on in August and onwards based on the increasingly optimistic Global PMI prints.

The US Presidential election is now almost within reach (to be held on 3^rd November). According to the Guardian’s US elections polls tracker, Joe Biden continues to lead Donald Trump in the national polls. Although Mr. Biden maintains the lead over Mr. Trump in terms of the popular vote, the electoral college votes still hang in the balance. The Guardian reports that in some swing states (a total of 57 electoral votes), such as Pennsylvania, Michigan, Arizona and Wisconsin, Mr. Biden commands a wide margin. However, in others (a total of 68 electoral votes), such as Florida, Ohio, North Carolina and Iowa, either Mr. Trump leads or the two candidates are head-to-head with each other. The first Presidential debate will be held on the 29^th September (Tuesday), where Mr. Trump’s and Mr. Biden’s records, the Supreme Court, the coronavirus pandemic, the economy, race and violence in cities and the integrity of the election will be on the agenda.

This week, In addition to the first round of US Presidential debates, investors will be monitoring the September jobs report. The ADP employment report will come Wednesday, followed by weekly data Thursday and the Labor Department’s monthly non-farm payrolls and unemployment rate Friday. In the EM space, PMIs will draw markets’ attention, as they will shed further light on the robustness of the economies and the sustainability of the ongoing recovery.

14 to 20 September: The Fed has recalibrated market expectations

The Federal Reserve made it clear that interest rates are going to stay at the zero-lower bound at least until 2024. This was probably no surprise to anyone. On the other hand, the message also included a firm(er) guidance on the prospects for the QE programme:  the Fed Chair ruled out the further expansion of the scope and size of asset purchases, should the economic recovery stay on course. In our view, the message was clear not to expect any additional easing measures on top of the already existing programmes. With that in mind, investors may re-focus their attention on the US administrations’ efforts to draw up bill on additional fiscal support as well as the upcoming Presidential election (3^rd November). According to the latest polls, Mr. Biden maintains a 4-11-point lead over President Trump (according to the polls referenced by the New York Times). The question is whether the potential win of the popular vote translates into a sufficient number of electoral votes for Mr. Biden to take over the steering wheel.

7 to 13 September: Eventful week ahead with a full economic diary

Crude oil prices were under pressure for much of last week. As a result, Brent crude price (for November delivery) fell 6.6% by the end of Friday to USD 39.99/bbl, whilst the WTI crude price (for October delivery) registered a 6.1% decline, slipping to USD 37.60/bbl. One of the key triggers for the fall of oil prices was triggered by Saudi Arabia and Kuwait cutting their official selling prices (OSPs) to some Asian countries. OSP cuts in the past usually signalled a weakness in overall demand for oil. Meanwhile, stockpiles in the US rose, as refineries slowly return to operations after production was shut due to storms in the Gulf of Mexico. Lower oil prices – especially for a prolonged period – are beneficial for many Asian countries, who are not importers, such as India and Pakistan.

We are facing an exciting week with Chinese macro data in the pipeline for Tuesday. And, it is Fed week! This will be the first meeting when the Federal Reserve will announce its policy decision within the new “average inflation targeting” framework. This week will be eventful from oil’s point of view as well. Today, OPEC releases their monthly report on the August production numbers together with the outlook for the rest of the year and 2021. Later on Thursday, the OPEC+ Joint Ministerial Monitoring Committee will meet.

31 August to 6 September: An uneven global recovery is on the way

The global composite PMI rose to 52.4 in August, with both the manufacturing and services PMIs hovering in expansionary territory. On the aggregate level, it looks like the world GDP could emerge in 3Q20 from the unprecedented slump seen in 2Q20. However, from a geographical point of view, the stabilisation and the subsequent recovery remain uneven. The glass half full interpretation of the latest global PMI report – in our opinion – the global economy is going to improve going forward, unless governments resort to widespread and severe lockdowns again like during the first wave of the pandemic.

The August jobs report in the US drew a lot of attention on Friday. Almost all headlines had positive implications, for example: non-farm payrolls rose 1.37 million (lower than the 1.73 million gains in July), the unemployment rate came down to 8.4% (from 10.2% in July) and labour force participation rose to 61.7% (from 61.4% in July). On the other hand, wage growth remained unusually high at 4.7% YoY. Although the headline itself sounds promising, one could argue that average wage growth is robust only because low(er) paid employees lost their jobs and they are yet to re-join the pool of employed. In addition, the number of permanent job losers rose by 500,000 – a new high. Therefore, one could say that the jobs market has stabilised and shows the initial signs for a sustainable recovery where the pace of which is probably going to be quite slow. This combination could leave policymakers scratching their heads regarding what the best possible course of policy action is– especially just two months before the Presidential elections.

Last week was all about global PMIs and the jobs report in the US. This week, we are going to see a high number of countries releasing their August CPI inflation figures (including the US and China). As long as inflationary pressures remain depressed, central banks – including the ones overseeing EM economies – will have enough room to maintain their historically low (real) interest rates. The European Central’s Governing Council meets on Thursday to discuss the economic outlook and the appropriate monetary policy stance.

24 to 30 August: Low(er) rates by the Fed for even longer

World industrial production continued to recover in June, when the volume of output grew 4.8% MoM, following the modest 0.8% MoM growth in May. Despite the strong monthly growth figure in June, the level of industrial activity was still down by 7.2% compared with the previous year. From a regional point of view, the Eurozone and emerging Asia contributed the most to the stabilisation. World trade, on the other hand, just turned a corner in June when the volume of trade rose 7.6% MoM. Therefore, it is safe to say that as long as economies remain open, world industrial production and world trade will get a chance to continue edging towards the pre-pandemic level.

Fed Chair Jerome Powell announced that the Federal Reserve will adopt a ‘flexible form of average inflation targeting.’ In another major change, the Fed will now interpret its maximum employment goal as a ‘broad-based and inclusive goal,’ which means that rather than focusing solely on aggregate labour market metrics, Fed officials will scrutinise how low-income and minority labour market participants are doing. The Fed Chair – deliberately – did not use tight language and thus it will take some time for markets to fully understand how the new framework works in practice. In our view, Mr Powell sent a very strong signal to cement expectations for low(er) rates for a very, very, very long time.

17 to 23 August: The Fed’s symposium and the Republicans’ convention in the limelight

There was a striking decoupling between European and US PMIs in August. The IHS Markit Composite PMI rose to 54.7 (from 50.3 in July), whilst the Composite PMI for the Eurozone declined to 51.6 (vs 54.9 in July). Both manufacturing and services activities contributed to the improvement in the US, suggesting the economy is on the mend from the pandemic-induced recession. Meanwhile, the drop in the Eurozone’s indicator was primarily brought about by a substantial loss of growth momentum in the services sector – which coincides with our view that the economic recovery is unlikely to be a smooth and clean-cut V in the region.

Although the message by the latest PMI print in the US was optimistic, the tone of the Federal Reserve’s latest minutes was quite sobering. The commentary foresaw a prolonged period of economic weakness, where inflation is persistently below target. The FOMC emphasised that the Fed funds rate will remain where it currently is throughout 2021, maybe even longer.

The Republican’s four-day national convention starts today, where President Trump is expected to speak every day. The Fed’s annual two-day economic symposium, traditionally held in Jackson Hole, starts Thursday. Investors will closely follow the Republican’s convention and will also be on the look-out for any indications how the Fed may (or may not) change its monetary policy toolkit.

10 to 16 August: Fed minutes and geopolitics to pull focus

Although a week has passed, it is still unclear whether President Trump’s executive orders on jobless benefits and reducing the payroll tax will have a meaningful impact on the economy. Since only Congress has the power to authorise new spending, the President can only re-allocate existing resources – this time the Department of Homeland Security’s Disaster Relief Fund will serve this purpose (although it was not originally created to address an issue of this nature). With congressional talks deadlocked, the probability of a genuine stimulus being approved just three months ahead of the Presidential election is declining. According to the latest political polls, Joe Biden maintained a 9-10-point lead over President Trump.

Although there are not too many datapoints in the US’ economic diary this week, markets will have plenty to digest after the Federal Reserve releases the minutes of its late-July meeting. In emerging markets, there will be a couple of datapoints to watch, such as monetary policy decisions in the ASEAN region or activity indicators in Latin America. But most importantly, EM investors will surely focus on geopolitics, such as any piece of news related to the US-China trade negotiations and half-year compliance review (no new date has yet been set).

3 to 9 August: The POTUS stirred the pot by signing executive orders

The start of the third quarter saw global economic activity stabilise and creep back into growth territory again. Undoubtedly the majority of the headline PMIs look better, rising to a strong enough level to push the global aggregate composite PMI back above 50 for the first time since February. Although rising new orders and increasing capacity utilisation provide a sense of comfort and optimism, the flagging employment component suggests there are risks that the recovery could stall. The July jobs market report in the US leads us to the same conclusion: nice headlines, but uglier under the surface, as the unemployment rate got stuck over 10%.

In an attempt to keep the economy going (and also to appeal to voters), President Trump signed four executive orders, which provide additional unemployment benefits (a USD 400 weekly payment, down from USD 600), suspend the collection of payroll taxes, avoid evictions and assist with student-loan payments. At the time of writing, the legality of the President’s executive orders remains unclear, as Democrats argue that Mr. Trump breached congressional spending authority by bypassing Congress, or in other words, what the POTUS did could have been unconstitutional. Furthermore, the executive orders require states to fund 25% of the weekly unemployment payments. However, it is uncertain whether states will be able to meet these obligations.

The global economic diary is packed for the week, which should help further assess the economic damage in 2Q20 (through e.g. the UK’s and the Eurozone’s GDP numbers) and will – hopefully – shed some light on the pace and sustainability of the economic recovery (through e.g. July macro data in the US and China). And if this would not be enough, the continuation of the US-China tensions and the Republican-Democrat clash will also keep investors engaged.

27 July to 2 August: A busy week ahead, again

Summer weeks are usually pretty dull, but definitely not this year. We have just had an eventful week with a Fed meeting, Q2 GDP releases and President Trump’s unexpected out-of-the-box ideas. And the week ahead is going to be just as packed and intense.

The latest GDP data in the US showed an unprecedented contraction (-32.9% in annualised terms) and indicated that five years of economic growth was wiped out in 2Q20. In order to support the economy, the Fed remains on an extraordinarily accommodative stance for a long time and probably will not raise the interest rates for years. In the meantime, Chair Powell – again – suggested that more fiscal support was needed to ensure a sustained economic recovery, but the Republicans and Democrats still appear to be far apart in the negotiations over the next economic relief bill. Due to the lack of consensus between the two parties, the USD 600 weekly unemployment benefit payments expired on Friday – posing further downside risk to the American consumer’s willingness and ability to spend.

On Friday, Fitch placed US government bonds (AAA rated) on negative outlook to ‘reflect the ongoing deterioration in the US public finances and the absence of a credible fiscal consolidation plan.’ On Sunday, the White House Chief of Staff stated that Presidential elections in the US would not be postponed and will be held on 3^rd November, as opposed to President Trump’s tweets, which suggested otherwise during the week.

From a political point of view investors will focus on domestic politics in the US (e.g. elections in November, the debate on the next economic relief bill) as well as rising geopolitical tensions between the US and China this week. From an economic point of view, the July jobs report in the US should provide valuable insights on the health of the world’s largest economy, whilst manufacturing PMIs globally should help gauge the state of the world economy.

20 to 26 July: The Fed meeting, geopolitics and the pandemic to shape global investor sentiment

Global macro data suggest that economic activity could have bottomed out in 2Q20. World trade data (released by the CPB) showed that global trade volumes further shrank in May, by 1.1% compared with April. The rate of decline slowed compared with previous months. The fall in trade was the biggest among advanced economies and Latin America. As opposed to world trade, industrial production slightly rose in May, by 0.8% vs. the level seen in April. On a forward-looking basis, the JP Morgan Global Composite PMI (rising to 47.7 in June) indicated that in terms of economic activity the worst could be behind us. Although it is welcome news that global GDP could stabilise and start to gradually grow in 3Q-4Q20, the pace of the impending global economic recovery remains uncertain.

This week, investors will focus on the message Jerome Powell delivers following the FOMC’s regular rate setting meeting on Wednesday. Furthermore, the news flow related to the intensifying geopolitical tensions between the US and China, the Trump administration’s next economic relief bill and potential consequences of a renewed spike in covid cases will also influence global risk appetite.