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US election, COVID-19 surge in Europe point to volatile week ahead for markets

The virus

The pandemic returned to the top of the list of risks for the market last week. Stocks suffered deep declines right across global markets, as a steep climb in COVID-19 infections in Europe and across the US mid-west prompted fears of tighter restriction measures in some of the world’s largest economies. France announced a one month total lockdown, and Germany has rolled out restriction measures in a bid to flatten its infection curve. While over the weekend, UK Prime Minister Boris Johnson announced the UK will enter a one month total lockdown, as the countries infection climbed above 1 million.

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RBA meeting

This RBA meets on Tuesday afternoon, in what will be the biggest local event of the trading week. Traders and economists are widely expecting the RBA to lower rates at this meeting, with the central bank tipped to cut the cash-rate, along with the yield target on 3-year government bonds, and the rate on its Term Funding Facility to 0.1 per cent. The major focus for the market at this RBA meeting, however, might be what it says about a potential QE program: the market is pricing in the RBA will launch a QE program in the near future, as the central bank looks for new ways to support the Australian economy.

US data

Against the backdrop of the US election, it will also be a big week of US macroeconomic event risk for the market. The US Federal Reserve will meet on Friday morning (AEDT), and although the central bank isn’t expected adjust policy settings, the market will be closely following what the Fed says about risks to the economic outlook, and its desire for greater fiscal stimulus from the US Government. The latest US Non-Farm Payrolls figures will also be closely watched by market participants. It’s expected to reveal that the US economy added 600k jobs last month, and that the unemployment rate declined to 7.7 per cent.

Company earnings

Company profits both domestically and abroad will continue to roll-in throughout the week. The big focus will remain on Wall Street, with US earnings season continuing to deliver better than expected numbers. Of the 64 per cent of companies that have reported earnings for the quarter, 86 per cent have delivered upside surprises, taking the blend earnings forecast for 3Q, according to FactSet, to -9.8 per cent. It will also be a bumper week for earnings across the ASX this week, with the likes of Westpac and NAB handing down results.

Listen to the Short Squeeze, our weekly markets podcast produced in conjunction with IG here. This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.

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