What to Expect in the Final Stretch of the Election Campaign
The past week was volatile with geopolitical concern but the week closed in the positive due to jobs report.
Trade confusion throughout the week after contradictory reports from Washington and Beijing, with comments from Donald Trump in London for the Nato meeting indicating a deal may not be possible until after the 2020 election.
The main macroeconomic event last week was the Nonfarm payrolls, which showed a big beat vs. expectations. The first Friday of the month saw markets react to a smash hit in the US payrolls report. The US economy added 266,000 jobs last month which is the biggest advance in payrolls since the beginning of the year. Along with a combined upward revision of 41,000 to September's and October's jobs gains.
Together, this puts the 3-month average of jobs gains at 205,000, while the year-to-date payrolls average is a solid 180k, just 40,000 below last year.The other aspects of the jobs report were also positive in the US labour market. Unemployment unexpectedly fell to 3.5%, equalling the 50-year low last seen in September.
Average earnings were not so great but show signs of an improvement, with hourly earnings ticking up by 3.1% YoY, and 0.2% MoM. Overall, the jobs report blew expectations out of the water, pointing to a tight labour market with strong jobs gains, low unemployment, and steady wage growth.
As a result, the dollar gained ground on Friday, adding around 0.3% and the Dow Indice closes more than 200 points higher.It is an important week in UK Politics as we are days away from the general election.
The two candidates for Prime Minister, Boris Johnson and Jeremy Corbyn, went head-to-head on Friday evening, though neither seemed to have any impact, with both leaders seemingly following a safety first strategy and sticking to their well-rehearsed attack lines.
Boris Johnson repeated the 'get Brexit done' message while Corbyn, pledged an increase investment in public services. A YouGov poll after the debate showed it to be largely a draw, with 52% of respondents putting Johnson as the winner, and 48% selecting Corbyn.This Tuesday’s final YouGov MRP model of the campaign will be an important indicator.
This poll uses a much larger sample size than traditional polls, as well as multi-level regression to predict the result on a seat-by-seat basis. It is regarded by markets as a more accurate representation of the likely result, particularly after correctly predicting the 2017 election.
As we approach the final stretch of the election campaign, the parties will be making their final pitches to the electorate ahead of polling day on Thursday. As with all recent polls, should the view continue to predict a Tory majority, sterling should benefit going into the polling day.
Of course, markets will primarily react to the exit poll, before watching the results throughout the night. The picture of who will form the next government should become clear by around 3 or 4 o'clock on Friday morning.
Away from the election, the week ahead sees this year's final monetary policy decisions from the Federal Reserve (Fed), European Central Bank (ECB) and Swiss National Bank (SNB). None of the Banks are expected to alter any policy settings this week, however it will be interesting to see how ECB President Lagarde handles her first meeting at the helm of the Bank.
This week's data calendar is relatively light, with only a couple of US releases of note. Investors will pay close attention to Wednesday's CPI inflation print, along with Friday's retail sales numbers, though neither are likely to significantly alter the FOMC's policy stance.
Finally, be aware of any potential impeachment vote in the House and the potential imposition of additional tariffs on Chinese goods.
Investors will be looking for clarity on the U.S.-China trade war as the world's two largest economies are in talks to finalise on a phase one trade deal as 15% tariffs on billions of dollars in Chinese imports are set to begin on the 15th of December.