US Q3 GDP print published last week came slightly better than expected at annualized rate of 33.1%, versus the consensus view of 31.9%. This historic recovery from -31.4% in Q2 was largely expected by market participants.
The support for such recovery came predominantly from the stimulus by the Federal Government and from the re-opening of the U.S. economy. Lockdowns imposed in March this year have largely been lifted, with a few regional restrictions still in place. But that was before the U.S. was hit with the third wave of infections. Over the weekend U.S. reached another record of 100,000 daily new cases, while the total count of infections exceeds 9 million in America now. The experts are warning that situation will deteriorate before it starts showing signs of improvement. This means that the U.S. may face lockdowns again, similar to what European countries have been forced to do, in order to slow the spread of the virus. The economic impact of lockdowns will be severe – hampered consumer confidence, lower consumer spending and housing sales, to name a few. The latter two skyrocketed in Q3, with respective growth rates of 40.7% and 59.3%, on an annualized basis. It’s noteworthy that the growth in housing is driven purely by residential real estate as commercial real estate investment is down by -15% YTD. Residential real estate and spending on durable goods are now exceeding their pre-COVID levels, having grown by 6.8% and 7% YTD respectively. What’s certain is that the Q4 will not be easy, not from healthcare nor economy’s perspective. This puts the U.S. in the worst recession ever with an annual growth rate of -3.8%, after considering the first three quarters of the year. As a comparison – during 2008 crisis the economy shrank by ‘only’ -2.5%. Further stimulus from the Congress might give a small boost to consumers and businesses but as the talks between Mnuchin and Pelosi seem to have come to a halt, we may need to wait until 2021 when the POTUS 46 gets inaugurated.
U.S. Presidential and Congressional elections are around the corner – Americans are going to the polls on 3 November. Joe Biden is currently leading by a very narrow margin in key states, based on data from Rosenberg Research. However, as we can remember from 2016 elections, polls can be misleading. Adding to the controversial and polarizing pre-election campaigning there have been scandalous reports from the U.S. around mail ballots. For instance, voters in Texas have not received their absentee ballots at the time of writing this report. Absentee voting has really been a key topic during this election, in the context of COVID-19 but also the attempts by Republicans to suppress the voting process. However, it should be highlighted that 5 days before the election more than half of 2016 votes have been submitted using absentee ballots, meaning that we can expect further discussions and potentially even federal judges stepping in during the counting process.
The markets have been restless this past week, at the back of COVID-19 spread, pre-election conundrum, as well as pending stimulus bill. Equity markets are down – S&P500 declined by -5.6% and Nasdaq100 by -5.5%. VIX hit 4-month intraday high of 41.06, while USD, measured by DXY index, was up by 1.2%, breaking short-term Moving Average levels and kissing 100-day Moving Average at 94.3. Gold futures have been moving in a lockstep with USD, shedding 1.2% this week. Oil futures really took a beating, dropping 10.1%.
Please find the below report to read more analysis of key macro and economic events this week!
Have a great trading week ahead!