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Written by: Craig Erlam | OANDA Europe
This week hasn't quite lived up to expectations and investors are getting a little nervous as we head into the final few months of the year.
The Fed is highly accommodative but not accommodative enough, Congress is desperate to agree a much needed relief package but no closer to doing so and virus numbers globally are rising, rapidly. What's more, tech stocks - which were a driving force behind the outstanding stock market comeback - remain shaky and vulnerable to more downside.
While the end of the year could look very different - a Covid vaccine, political clarity and fiscal support - the next few weeks could be challenging. Congress is running out of time and an awful lot of compromise is required to get anything over the line. In the absence of a deal, it's not hard to envisage a continuation of the tech-led correction in the markets.
UK heading for more restrictions as consumer continues to drive economic recovery
What's more, we've long anticipated a tough winter as far as Covid is concerned but the spike has arrived early and restrictions are already being put in place which will weigh heavily on the economic recovery, just as policy makers were starting to feel a little upbeat about the pace of the rebound.
Here in the UK, regional restrictions are already being imposed in the hope that a repeat of the nationwide lockdown can be avoided but already there's reports that a brief two week repeat is under consideration next month. It could be a bleak winter for business and the icing on the cake could be no-deal Brexit. Once again, compromise is required in these difficult times.
UK retail sales remained strong in August, up 0.8% compared to July and 4% since February. In an economy like the UK, consumer spending is hugely important and so these numbers are clearly a source of encouragement. Of course, that's until you remember that the furlough scheme comes to an end in October, at which point the picture may change dramatically as unemployment soars. It may be time for another government u-turn to help the economic recovery navigate through the hard winter.
Saudi Energy Minister has warning for oil gamblers
Saudi Arabia'a Energy Minister, Prince Abdulaziz bin Salman, had some harsh words for anyone wanting to profit from a decline in oil prices after the OPEC+ JMMC meeting this week, warning that the market won't go unattended and he wants traders to be as jumpy as possible. With a threat that anyone who gambles on the market will be "ouching like hell", it will be interesting to see just how oil prices now respond as they near the $40 mark.
The threats weren't just saved for those that bet on weaker prices, with a thinly veiled warning directed at those not complying within the group. He warned that attempts to over-produce and hide non-compliance have and will always end in failure, a warning clearly aimed at the UAE which has fallen far short of its quota and will make up the short-fall with compensation cuts by year-end.
With Hurricane Sally forcing shut-ins in the Gulf, oil prices have been well supported in recent days and these comments could well put a floor underneath them for the foreseeable. Even in the event of a Covid-driven demand shortfall, an emergency October meeting will be called to address the change, with the next scheduled meeting taking place in December.
Gold ends pretty much where it started
Gold is on course to end the week roughly where it started, despite the Fed not delivering the uber-dovish message the market wanted to hear. The short-squeeze in the dollar was brief but that doesn't mean it's all down hill from here. The dollar has fallen considerably since March which has provided significant support for gold but it's since entered a period of consolidation. The dollar has threatened a correction but has failed to gather much momentum so far. The failure of gold to break $2,000 once again doesn't bode well for the yellow metal. Ultimately though, the range is tightening. The good news is that we may not have to wait too long for a breakout.
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