Stocks pare recent losses

An action-packed week is off to a strong start on Monday, with European indices reversing earlier declines to rally more than 1%. Wall Street is poised for a similarly strong start.

Election risk could shake up markets

This comes despite an enormous amount of event risk this week, not least the US election on Tuesday. With more than 94 million votes having already been cast ahead of election day – 68% of the 2016 total – it promises to be a huge turnout.

It’s perhaps surprising that we’re seeing the kind of moves we are, given what’s to come, but these markets have factored in a lot of negative developments over the last few weeks, so in the grand scheme of things, these moves are pretty negligible.

Broadly speaking, we may see investors taking to the sidelines as we await early results from the election. Not only who’s going to be sat in the White House for the next four years, but who’s going to dominate the Senate, arguably equally as important if Joe Biden wants to deliver on his big promises. Assuming of course that the polls are to be believed.

It’s not just the election that’s key this week. We have three major central bank meetings – the Fed, BoE and RBA – all of whom are likely to ease monetary policy before year end, alongside others. Central banks were key to the response earlier this year and will have a big role to play in round two.

Then there’s the jobs report on Friday, which doesn’t even make the top three as far as major market moving events this week are concerned. With Congress failing to pass a stimulus package prior to the election, the jobs numbers will get extra scrutiny in the coming months as we try to determine the cost of the failure on Capitol Hill.

In a sign of how chaotic this week is, we’re into paragraph seven before I’m even referencing Covid and the havoc it’s wreaking across Europe. The UK will join the list of countries in national lockdown on Thursday and it’s only likely to get longer.

The desperate attempt across the continent to save Christmas is underway but health officials don’t seem particularly confident it’s going to be enough. Life is likely to be very restrictive until early next year which is going to take its toll on economies around the world.

Of course, China seems to be doing very well indeed. Not only is it containing the virus, its economy is thriving as evidenced by the PMI readings over the weekend and this morning. Perhaps this is supporting sentiment this morning as a strong Chinese economy has benefits for others, European manufacturers for example.

The manufacturing PMIs from across Europe this morning highlight just that, with the growth not being replicated in the services sector as restrictions act as a major drag on the sector. That’s not going to change any time soon, with restrictions rapidly choking off any recovery we saw in the third quarter.

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.