RBC Capital Markets

Week ahead: The FOMC minutes (Wednesday) will help market get a better gauge of the support within the committee for keeping policy rates at zero through 2023. The US trade balance (Tuesday) is also due. Beyond the scheduled calendar, the market will be focused on the stimulus discussions in Congress and Trump's medical condition. The Pence-Harris vice presidential debate on Wednesday would also be of interest. Other notable events over the course of the week are the RBA policy meeting and Australian budget announcement (see AUD), Canada employment report (see CAD), and ECB minutes (see EUR).

EUR: The ECB minutes (Thursday), Germany factory orders (Tuesday) and Germany industrial production (Wednesday) are the key releases from the EU.

GBP: We expect the August GDP (Friday) to show the UK economy growing by 5.5% m/m, and the economy to have recovered to 95% of its pre-pandemic level by end-Q3. The other UK data releases include construction PMI (Tuesday) and industrial production (Friday).

NOK: Norges Bank Governor Olsen will deliver a speech on Tuesday. Data releases include industrial production (Wednesday) and CPI inflation (Friday).

CNY/INR: China’s “golden week” holiday runs for most of the week, but we do have the China Caixin services PMI on Thursday. India services PMI (Tuesday) is also on tap.

AUD: The RBA policy decision comes on the same day as the Australian budget (Tuesday). We do not expect the RBA to announce any changes this week, but the communication will likely be dovish to prepare the ground for additional easing expected in Q1. The budget meanwhile will deliver a historically large deficit (est. A$236bn) and accompanying debt issuance program this FY. The budget will also contain full four-year forecasts, with the underlying balance set to remain in deficit over the forecast period.

CAD: We forecast an approximately C$1bn improvement in the trade balance (Tuesday) to a C$1.5bn deficit in August. Autos exports should move lower after shifting seasonal patterns during the pandemic boosted July’s number, while energy exports are expected to inch up by 1% on higher prices. Excluding these two categories, we pencil in a 3% sequential rise, retracing about half of the remaining gap from the February level. Imports should be approximately flat in the month. On the services side, the balance is expected to remain around the +C$200mn mark where it has been since May due to ongoing cross-border travel restrictions. We estimate a 200K rise in September employment (Friday), reflecting a continued slowing in the pace of job growth. Seasonal distortions in the monthly pattern from youths/students are likely to be behind part of the monthly gain. The movement of students from unemployed to out of the labour force should drive the unemployment rate lower to 9.4%. Underemployment has remained an issue, with involuntary part-timers elevated at about 2% in August. We expect hours worked to rise further after a 2.9% m/m August increase that left the level still 8.6% below February.

JP Morgan

EUR: Compared to price action seen elsewhere, the single currency was once again well contained on Friday, seemingly trying to interpret the implications of the Trump news and also the soap opera that is Brexit. The suggestion is that the Trump news, increased the possibility of reaching an agreement on the stimulus talks, but also enhanced Biden’s chances of winning the election and therefore, reducing the chance of a contested outcome. This fed through to risk generally trading better, although as noted above, EURO remained contained within a tight range. Trump is apparently ‘doing better’ as evidenced by his bizarre drive by outside the Walter Reed hospital, which has seemingly calmed markets, but even if he is discharged today, as suggested by some, the medical facilities in the White House are extensive and this story will likely have a few more twists and turns. Over the weekend, one poll had Biden 14 points ahead which reinforces the view that this election is now his to lose. We remain medium term bulls, but would like to see a break above trendline resistance at 1.1770/75 to further encourage the view. Support will be found at 1.1680/00. Final PMI data is released this morning.

GBP: Nothing too instructive from Saturday’s Johnson VDL call as while we are not in the tunnel (this would have been a real surprise) the joint message remains that progress is being made but “significant gaps” remain and that both sides must “work intensively” in coming talks which have been agreed to continue this week. There is no denying that sentiment is continuing to build for a positive outcome and while Johnson’s October 15th deadline is fast approaching it does feel that the will is there from both sides to do a deal although this is likely to be a very skinny one. We are feeling a bit more positive on the whole situation but mindful there will continue to be plenty of headline risk in the coming days – we will be using these opportunities to buy dips in cable in the near term. Flow wise there was little to speak of on Friday to change what was a pretty positive week overall for GBP from both HF and RM. Intraday support at 1.2895/05 with 1.2800/10 below (0.9045/50, 0.9000 EURGBP) while 1.2900/05 is intraday resistance with 1.3000/10 above (0.9120/25 0.9165/70 EURGBP), final Service PMI at 09.30 BST.

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