A Macroeconomic Update at the End of the Summer

Now that the summer has passed, many traders use the opportunity to review macroeconomic conditions ahead of the important months to come. Two main events stand out to the crowd from a macroeconomic point of view – the United States Presidential election and the Brexit talks due to end in December. 

The battle for the White House continues and is likely to trigger more market reactions moving forward. President Trump closed the gap between him and Biden, and now some bookmakers even credit him with the first chance of winning another term.

Ongoing Brexit talks still create volatility on the GBP pairs. This Tuesday, a new round of talks starts, with many in the United Kingdom expressing their doubts that a deal will be reached ahead of the December deadline.

Economic Growth Possible Despite a Spike in Covid-19 Cases

The virus came back with a vengeance as the infections surged in Europe after lockdown measures were lifted. However, the intensity and severity of the cases declined, making it possible for many countries to achieve economic growth in the second half of the year. Still, the road ahead is full of uncertainty, as school starts, and the fear of even more cases is high.

While the United States economy is expected to grow at a faster pace, investors will likely step aside from taking risks until the race for the White House ends. The Fed is expected to deliver even more stimulus until the end of the year, possibly as soon as the first meeting, creating investors fleeing the fixed-income market altogether.

Speaking of the fixed-income, there is a massive inflow of capital into Chinese bonds as they are pretty much the only ones that still deliver a positive yield. China is viewed as the one country that controlled the virus and is expected to deliver strong economic growth by the end of the year. However, tensions with the U.S. are likely to be on the rise, and should Trump win a second term, the U.S.-China relationship will hold the headlines for quite some time.

Abe’s resignation in Japan created volatility on the JPY pairs, but now things have calmed down a bit. A continuation of Abenomics is expected as Japan struggles to recover from yet another recession.

All in all, busy months ahead with the potential of high volatility and with the stock market being the wild card.

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