Crucial Friday: US Labor Market, Stimulus and Brexit

2 Okt 2020

The list of major events yesterday was the same as on any other day of this week - stimulus in the US, Brexit and situation in the US labor market. On each of these issues, rather contradictory information was received and there is still no clarity in any of them.
Let’s take Brexit as an example. The European Union announced yesterday morning that it is starting a legal action against the UK over Prime Minister Boris Johnson's plan to break the terms of the Brexit divorce. As a result, the pound rapidly lost about a hundred points.

But later there was information from a number of British officials that there is significant progress in negotiations between UK and EU. After that the pound not only won back the previous losses, but also added about 50 points from above. However, the EU did not confirm this information and the further growth of the pound stalled and downward pressure returned. Today, in theory, the sides should summarize this week of negotiations and possibly shed light on the real level of progress. As a reminder, we believe that there will be a deal, and accordingly this week we recommend to be very cautious with shorting the pound.

The situation is similar with incentives in the United States. On the one hand, Republicans say that $2.2 trillion is not a subject for conversation in principle, but on the other hand, they offered $1.6 billion package. Democrats ultimately do not vote on their bill, hoping to vote for that version, which will have a chance of passing the Senate and Trump. But at the same time, they note that $1.6 billion is a half-hearted measure, and there is no point in agreeing to it. As a result, the question continues to hang in the air. As a reminder, we believe that the parties will not come to an agreement before the US elections, which means that the current growth of the US stock market is an excellent opportunity to sell higher.

With the US labor market, everything is far from clear as well. On the one hand, the numbers from ADP and statistics on jobless claims set up positive expectations. On the other hand, massive layoffs by Disney, Shell, American Airlines and a number of other large companies, coupled with a sharp increase in the number of bankruptcies in the United States, speaks in favor of a serious crisis in the US labor market.

In general, Friday may well be the day when answers to all the main questions of the week will be found. This means that potentially financial markets can literally explode. 200-300 or even more pips for pound pairs are quite possible today. The same goes for the behavior of the US stock market, gold prices, etc. In general, we are preparing for a very busy day and do not forget that today the dynamics will be directly determined by factors of a fundamental nature. So, follow the news and make decisions after the facts.