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Written by: Craig Erlam | OANDA Europe
What a week we have in store and markets are off to a promising start, with investors in no way deterred by the number of major risk events to come.
Europe is off to a strong start, with indices up well over 1% in early trade and the US isn't far behind after a disappointing showing in recent weeks. Sentiment has taken a significant hit as a result of surging Covid cases in Europe and the risk of further restrictions, even lockdowns. That risk hasn't gone away which makes me cautious about these spurts of optimism.
That optimism will certainly be put to the test this week, with the first US Presidential debate taking place Tuesday evening, jobs report coming Friday, a flurry of economic data the rest of the week and more Brexit negotiations between London and Brussels as the mid-October deadline fast approaches.
The first of these points is undoubtedly the most important though, from a global perspective. Biden's lead in the polls is significant but the debating arena surely favours Trump. The President is no stranger to polling deficits and is probably champing at the bit to get the debate underway.
While the most important aspects of the debate will focus around Trump's handling of the Coronavirus and who's best to steer the economy through the recovery, the New York Times report on Donald Trump's taxes - or lack of - will undoubtedly come up. Whether Biden can fully capitalize on it is another thing, with the President likely to continue to brush it aside as fake news and reinforce his attack on fake news media.
Sterling higher as crunch talks get underway
Here in the UK, Brexit will remain heavily in the headlines as the mid-October deadline fast approaches. The last few weeks have been unproductive but talks haven't been completely derailed and there remains a strong determination on both sides to get a deal over the line and avoid an extremely undesirable no-deal Brexit, particularly in the current environment.
Call me naive but I remain optimistic that the differences will be resolved despite all the brinkmanship. Whether it happens by the EU summit in a couple of weeks is another thing. We've all seen how these deadlines are observed in the past and I don't think we can bet against one final twist and turn. Sterling volatility will remain and despite today's surprising optimism, I doubt it will be plain sailing from here.
Oil in the red despite wider market optimism
Interestingly, rising stock markets and a softer dollar are not providing a boost for oil prices, which are trading a little lower as Covid fears dominate. With global deaths about to pass one million and case numbers across Europe rising even prior to the high risk winter period, the demand outlook for crude is looking challenging. Stable prices for now may be encouraging but the risks remain to the downside, the only opposing factor being OPEC+ following the warnings from the Saudi Arabian Energy Minister.
Gold stable but risks skewed to downside
Gold is another who's risks appear skewed to the downside, with a softer dollar providing little respite on Monday. The yellow metal has come under pressure in recent weeks and while it has stabilized a little, there doesn't appear to be much appetite in the near-term. US real yields have been inching higher which may be contributing to the downward pressure on gold prices and may be one to watch if that gathers any real momentum.
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