Improvements were seen in Germany’s manufacturing PMI index, which helped to mitigate the decline in services. Services and manufacturing activity expanded at a faster pace in the U.S., and for Australia, faster growth in services offset the decline in manufacturing, allowing the composite index to rise. Not all news was good news. In Japan, the manufacturing PMI index increased, while the service sector PMI index declined. In the UK, service and manufacturing activity slowed. These reports are important because they tell us just how much damage the second wave is having, if at all, on regional economies.
Meanwhile, no changes in monetary policy are expected from the Bank of Japan and Bank of Canada, but the BoJ could lower its economic assessment. Despite stronger retail sales, weaker than expected UK PMIs kept sterling under pressure. Investors are also growing weary of Brexit negotiations and starting to drive the currency lower.
In the U.S., House Speaker Nancy Pelosi kept the hope alive when she said a package can be passed before the election if President Donald Trump backs it. However, stocks sold off after Treasury Secretary Steve Mnuchin said there are still “significant differences.” In reality, the clock is ticking and, with Trump trailing in the polls, Pelosi won’t be too eager to reach an agreement before the election. Equity traders are still very sensitive to stimulus headlines, but FX traders have grown numb to the back and forth. Like Europe, virus cases are rising rapidly in the U.S. but states have not imposed many new restrictions, which is the key to confidence, spending and growth. Still with less than two weeks until the election, volatility could be bigger than usual as investors adjust their exposure ahead of this high risk event.
