Week Ahead

Uncertainty and Risks Remain for US Markets – Week Ahead

After a tumultuous week in the United States investors are gearing up for more uncertainty next week as US Federal Reserve Chairman Powell reiterated several days ago that while an economic recovery has started in the United States, it will remain muted until the federal government can invoke a new stimulus package to boost economic activity apart from the daily intervention measures from the Federal Reserve Bank.

President Trump seemed to detail such efforts by announcing he was withdrawing his negotiations with Democrats on reaching a new stimulus deal, which, along with this Covid-19 diagnosis and uncertainty about upcoming scheduled presidential debates threw more doubt into the current political and economic stability of the country.

According to HYCM Chief Currency Analyst, Giles Coghlan, the reaction to Trump’s announcements “was fairly muted”, but pointed out that “the prospect of the US election is still creating significant volatility in markets and more twists and turns are expected as the Democrats and Republicans seek to outmaneuver one another ahead of the US November elections”, according to a research post.

As we have pointed out earlier on the Industry Spread, investors have already indicated that the US election and its impact on markets is the sole most important issue making investors wary in the coming weeks. As such, traders should use solid risk management techniques to manage any open positions they have in the markets leading up to the US election.

Key events happening next week also include negotiations in the UK regarding Brexit, which Giles Coghlan indicated can create “some strong moves in the GBP next week as the EU and UK potential reach the end of the negotiating road.” In the US retail sales will be reported on October 16th. Since they are a leading indicator of economic activity and the release is so close to the election, a positive retail sales report “will be positive for risk assets. However, a much weaker reading than expected, showing signs of weakness from the US consumer, will weigh on US stocks next week”, according to Giles Coghlan.

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