US stocks exhibited volatility on Friday. The Dow Jones index fell slightly by 0.1%. The S&P 500, on the other hand, rose 0.3%. the NASDAQ also showed positive dynamics and closed with a growth of 0.4%.
The publication of macroeconomic data last week was a stimulating factor for currency flows in the market. The dollar showed a drop against most of the leading currencies, ignoring only the pound. Market players focused on business activity reports, which are extremely important for assessing the market as a whole, as they reflect the state of the economy and mainly the degree of damage that the second wave of coronavirus caused to the above-mentioned countries.
According to the data, in most countries, there was not the strongest slowdown that traders feared in October. Thus, Germany registered an increase in business activity in the manufacturing segment. This contributed to partially equalizing the weakness of the indicator in the service sector. Activity in both sectors is also picking up in the US. In Australia, an improvement in the indicator for services offset the regression in production. As a result, market players noticed a rise in the composite index. However, a number of countries also reflect negative dynamics. For example, in Japan despite the fact that the index of the manufacturing sector surpassed the figure for the previous month, activity in the services sector is still slowing. And the UK, according to the data provided, showed a decline in both indicators.
The current week promises a lot of reports on the earnings of leading companies, including the high-tech segment. 170 companies, including Beyond Meat, Boeing, Caterpillar, Honeywell, Merck, and Pinterest, will provide earnings reports to investors. Microsoft is expected to report on Tuesday, and Apple, Facebook, Alphabet, Amazon, and Twitter on Thursday.
Central Bank meetings on monetary policy are also scheduled for this week. Attention will be drawn to the European Central Bank, which, according to traders ' expectations, should ease the DCP by the end of this year. It is worth noting that the composite index of business activity in Europe shows a negative trend. But despite this, the sudden rise in flash and manufacturing sector data is intended to help single currency traders recoup Thursday's losses.
It is noteworthy that the EUR / USD pair last Friday showed the best indicator for the first time in a month and even led the results of Friday's trading. And this is despite the obvious decline in business activity and the unfortunate pandemic. Undoubtedly, the Euro's progressive dynamics is largely due to the fall in demand for the US dollar, but the main driver is still the indecision of the heads of most countries to impose a full quarantine.
The data on GDP growth in Europe for the third quarter is expected to be published by the end of this week. It is worth noting that the PMI data last Friday reflected a recession in economic activity at the beginning of the fourth quarter.
The US presidential election is just over a week away. According to official data, Donald Trump is still lagging behind Biden in the election race. If Joe Biden wins, the stimulus package that the Democrats are proposing will be accepted unequivocally. Moreover, the victory of Biden should support clean energy, cyclical stocks, and stocks of companies involved in the production of cannabis. If Trump wins the election, it will trigger a rise in shares of traditional energy and technology companies. These same companies, if Biden wins, are likely to be subject to high corporate taxes.
If we talk about currency flows, then the victory of the current President can cause an unbreakable blow to the Mexican peso and the Russian ruble, but provoke the rise of the weakened US dollar.
The key factor in the market is still on the negotiations on the stimulus package to support the US economy in its fight against the coronavirus crisis. Despite the recent statement by House Speaker Nancy Pelosi that the chances of a stimulus package before the presidential election are high, Treasury Secretary Steven Mnuchin still speaks of significant differences between the parties. Moreover, the top Republican in Congress, Mitch McConnell, clearly does not want to introduce such a large bill in the Senate on the eve of the election. This is primarily due to the level of public debt. In light of these statements, the stock market responded with a sell-off the day before.
The epidemiological situation in the US is as depressing as in Europe. However, the head of state is limited only to the introduction of local restrictions, not deciding on a complete, all-consuming quarantine. This approach increases the percentage of confidence, as well as supports spending and economic growth in the US.
On Thursday, investors also expect coverage of the preliminary estimate of US GDP for the third quarter. Analysts estimated a record growth of 31.9%. This expected figure is higher than the record of the historical fall in the second quarter which is at 31.4% when the coronavirus led the global economy into decline. It is worth noting that the prospects for economic recovery are still vague, because existing stimulus measures do not have the proper effect, and cases of coronavirus infection continue to multiply.
The weekly report on initial applications for unemployment benefits in the US is also expected on Thursday. This report will help you understand whether the labor market recovery is really gaining momentum.
The coming week promises to be hot, given the uncertainty about the fate of negotiations on the stimulus package for the US economy, political events in the run-up to the presidential election, the release of many income reports, as well as key economic data.
The market is clearly expecting increased volatility in the coming days, as investors may well adjust positions before such a risky event as the November 3 elections.
