• Negative rates may hit bank margins but that could be offset by positive effect for economy

• Full lockdown would deprive children of education and damage the economy
• I do not believe we need a full lockdown
• I do not believe we should stand aside and let the virus spread
• To let virus rip would mean the intolerable death toll
• Delaying other treatments would damage long term health of the nation
• I take no pleasure in imposing restrictions on businesses
• Tiers are medium, high and very high
• Medium alert level will cover most of the country
• High tier reflects current local lockdowns
• High alert aims to reduce household to household transmission
• In very high alert levels, pubs and bars will close
• We will work with local government on additional measures in very high tier
• Retail schools and universities will remain open
• Gyms and leisure centers, betting shops and casinos will close and very high risk areas
• Government will expand economic support to those affected
• We are talking to other local leaders on lockdown rules
• Rules will be debated and voted on before coming into force on Wednesday

Francesco Pesole, FX Strategist at ING, notes that according to CFTC data, the G10 FX positioning picture remained broadly unchanged in the week ending 6 October.

"EUR net-long positioning faced a minor setback in the week, which is probably linked to some repricing of European growth expectations after new restrictions being imposed and some fears that the EU Recovery Fund will be delayed."

"The yen also faced a similar setback in positioning, which may largely be due to US political events, as President Trump was released from hospital and a consolidating lead by Joe Biden in opinion polls lowered the perceived risk of a contested election."

"Sterling faced a sizeable drop in its positioning gauge two weeks ago and then stabilised around -7% of open interest. GBP appears to be in wait-and-see mode ahead of Brexit talks that will determine the future of the UK-EU relationship. This Thursday’s EU summit is Prime Minister Boris Johnson’s self-imposed deadline for a trade deal, but we expect the deadline to be breached and negotiations to continue in the coming weeks. More details in our week-ahead publication."

"GBP net-short positioning does offer some position-squaring upside room, but it's key to note that the size of GBP shorts is still small compared to other periods where a no-deal outcome appeared as a serious risk."

"In the rest of G10, the New Zealand dollar saw the biggest jump in positioning during the week ending 6 October, although the move was not exactly relatable to any market-moving event or releases in that period. We continue to highlight that NZD net-long positioning now looks quite overstretched, especially considering the Reserve Bank of New Zealand's apparent determination to add stimulus soon. The upcoming general election in New Zealand isn't really playing a role in currency dynamics right now."

• PM has been clear with European leaders that time is running out
• UK is at critical point to confront second wave

U.S. stock-index futures surged on Monday, as investors remained hopeful that U.S. lawmakers would provide additional economic stimulus while preparing for a kickoff of Q3 corporate earnings season. 

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Cisco (CSCO) downgraded to Neutral from Buy at Citigroup; target lowered to $43

Pfizer (PFE) downgraded to Neutral from Overweight at Atlantic Equities; target lowered to $39

Travelers (TRV) downgraded to Underweight from Neutral at JP Morgan; target $129

Ford Motor (F) upgraded to Buy from Hold at The Benchmark Company; target $10

Int'l Paper (IP) upgraded to Outperform from Market Perform at BMO Capital Markets; target raised to $53

PepsiCo (PEP) upgraded to Buy from Neutral at Citigroup; target raised to $169

Twitter (TWTR) upgraded to Buy from Hold at Deutsche Bank; target $56

ING's strategists note that with US markets closed for the Columbus Day holiday, the focus in quieter conditions has been to assess whether the PBOC is trying to apply the brakes on the recent renminbi rally. 

"On Saturday the PBOC cut the risk reserves ratio for FX forwards to zero from 20% - effectively reversing a move put in place to protect the CNY when it was under pressure in August 2018 at the height of the US-China trade war."

"The PBOC also fixed USD/CNY slightly higher than model-based estimates suggested, a commonly used policy to suggest slight displeasure with the pace of renminbi gains."

"The moves saw USD/CNY gap higher and will take some of the steam out of the recent rallies in commodity currencies (Norway's krone, Aussie and Canadian dollars) in G10 and the Mexican peso and South African rand stand out in the Emerging Markets space."

"Whether this means that USD/CNY now consolidates above 6.70 into the US election (and ushers in broader dollar consolidation) remains to be seen, although a more positive interpretation could read the PBOC move merely as a further liberalisation measure? However, the lack of the CNY tailwind tends to favour consolidation, rather than a further dollar decline."

"DXY to trade a 92.90-93.60 range near term."

GBP fell against most other major currencies in the European session on Monday as investors awaited the announcement of the new COVID-19 restrictions by the UK’s PM Boris Johnson, which are hoped to curb growing cases of coronavirus in the country. 

The new round of lockdowns is expected to add pressure to the UK’s economy, which recorded its slowest growth rate in August since it began to recover in May from its deepest contraction on record amid the coronavirus lockdown. 

The decline, however, was limited by increased bets that there will be a trade deal between the UK and the EU. PM Johnson had set a deadline of the October 15 EU summit for reaching an agreement. However, markets believe that the UK’s government may soften this deadline. 

Boris Johnson’s spokesperson stated last week that the latest round of negotiations with the EU was "useful",  but differences remained on important issues. The spokesman also confirmed that informal talks would resume in Brussels next week.

The UK's post-Brexit transition period, during which its future trading relationship with the EU must be renegotiated, is due to end in December.

• We have not run out of policy tools
• We are closely monitoring the impact of the coronavirus
• We are focused on corporate financing and market stability
• BoJ is open-minded and flexible

• Digital euro won't be a substitute to cash
• It will be a good supplement to cash

October 13

Before the Open:

Citigroup (C). Consensus EPS $0.85, Consensus Revenues $17119.13 mln

Delta Air Lines (DAL). Consensus EPS -$2.97, Consensus Revenues $3115.86 mln

Johnson & Johnson (JNJ). Consensus EPS $1.98, Consensus Revenues $20154.80 mln

JPMorgan Chase (JPM). Consensus EPS $2.24, Consensus Revenues $28122.43 mln

October 14

Before the Open:

Bank of America (BAC). Consensus EPS $0.49, Consensus Revenues $20882.95 mln

Goldman Sachs (GS). Consensus EPS $5.42, Consensus Revenues $9332.71 mln

UnitedHealth (UNH). Consensus EPS $3.08, Consensus Revenues $63890.69 mln

Wells Fargo (WFC). Consensus EPS $0.47, Consensus Revenues $17867.40 mln

After the Close:

Alcoa (AA). Consensus EPS -$1.07, Consensus Revenues $2242.94 mln

United Airlines (UAL). Consensus EPS -$7.58, Consensus Revenues $2577.24 mln

October 15

Before the Open:

Morgan Stanley (MS). Consensus EPS $1.28, Consensus Revenues $10543.10 mln

Walgreens Boots Alliance (WBA). Consensus EPS $0.96, Consensus Revenues $34380.70 mln

• Urges world leaders to stop “using lockdowns as your primary control method" 
• Says lockdowns can only be justified "to buy you time to reorganize, regroup, rebalance your resources, protect your health workers who are exhausted. But by and large, we’d rather not do it”

FXStreet reports that according to the latest Global Research report from the Bank of American (BofA), the US dollar (USD) and Japanese yen (JPY) are likely to witness further buying in the fourth quarter (Q4) due to their safe-haven nature. The underlying reason spotted is the global economic weakness due to the coronavirus (COVID-19) resurgence.

"The strong rebound in 3Q was temporary, driven by base effects from the 2Q lockdown."

"Indeed, global data have already started weakening, as the base effects are behind. We expect reintroduction of COVID-19 measures in most countries, and particularly in Europe, will also contribute to a weak 4Q."

"We note the US economy continues to perform better than most of the rest of G10."

Reuters reports that German Finance Minister Olaf Scholz said that the European Union is taking a step towards a fiscal union with its plans to recover from the coronavirus pandemic, which involve the European Commission borrowing in financial markets.

“We are moving towards fiscal union, a major step forward in the financial capacity and sovereignty of the EU,” Scholz told.

FXStreet reports that TD Securities analysts noted that the UK wants to finalize the outline of a deal with the EU by October 15.

"There are high expectations for some high-level give & take to finally push negotiations over the line and into the infamous "tunnel." However, we wouldn't be surprised if negotiations are dragged out for another few days and there's still risk of disappointment."

"We look for the unemployment rate to rise another 0.3ppts to 4.4%. August was the first month of a reduction in the government's contribution to the furlough programme, so we likely saw more businesses lay off employees as it became more expensive to keep them on. Wage growth should continue to pick up on a m/m basis, but likely remain negative y/y."

Reuters reports that OECD said that the global economy could shed more than 1% of output if international talks to rewrite cross-border tax rules break down and trigger a trade war.

Nearly 140 countries agreed on Friday to extend talks after the pandemic outbreak and U.S. hesitation before the presidential election squashed hopes of reaching a deal this year.

In the absence of a new international rulebook, a growing number of governments are planning their own digital services taxes, which has prompted threats of trade retaliation from the Trump administration.

“In the ‘worst-case’ scenario, these disputes could reduce global GDP by more than 1%,” the OECD, which has been steering the global tax talks, estimated in an impact assessment.

Inversely, new rules for digital taxation and a proposed global minimum tax would increase global corporate income tax worldwide 1.9% to 3.2%, or about $50 billion to $80 billion per year.

eFXdata reports that MUFG Research adopts a cautious bias on GBP in the near-term.

"The improving mood music for Brexit trade talks is helping to lift GBP but upward momentum has been dampened by the negative offset from rising downside risks to the economic recovery in the UK from further COVID-related disruption,". 

"In these circumstances,  we are becoming more cautious over upside potential for the GBP  even as the EU and UK appear to be moving closer to a trade deal. The upcoming EU Leaders Summit is not expected to be game changer for the GBP, but should not be overlooked as positive or negative surprises could trigger larger than expected moves. Further COVID-related disruption is increasing the likelihood of more BoE stimulus before year end which will weigh on the GBP," MUFG adds. 

Reuters reports that a senior ruling party official said that Japan must revise a law stipulating the Bank of Japan's mandate and responsibilities if it were to issue central bank digital currencies (CBDC).

"Any revision to the BOJ law would be a good opportunity to consider making other changes such as adding job creation to the central bank's mandate. Like the U.S. Fed, the BOJ should set job creation and inflation as its mandate ... The new law should also clarify that 2% inflation is the BOJ's policy target," said Kozo Yamamoto, head of the Liberal Democratic Party's council on financial affairs.

Bloomberg reports that according to Goldman Sachs Group Inc., the dollar may tumble to its lows of 2018 on the rising likelihood of Joe Biden winning the U.S. election and progress on a coronavirus vaccine.

“The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome -- a win by Mr. Trump combined with a meaningful vaccine delay. A ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.” strategists including Zach Pandl wrote in a note. 

Goldman joins the likes of UBS Asset Management and Invesco Ltd. in predicting a weaker dollar as Biden extends his lead over President Donald Trump with less than three weeks to election day. It recommends investors short the dollar against a volatility-weighted basket consisting of the Mexican peso, South African rand and Indian rupee.

According to the report from the Federal Statistical Office (Destatis), wholesale selling prices fell by 1.8% in September 2020 compared to September 2019. Destatis also reports that the year-on-year change was -2.2% in August 2020 and -2.6% in July 2020. 

Compared with the previous month, prices did not change in September 2020 for goods sold at wholesale level.

In September 2020, lower prices in the wholesale trade of petroleum products (-17.1%) had the biggest impact on the overall development compared to the same month of the previous year.

There were also sharp price decreases compared to the previous year in the wholesale trade of live animals (-13.4 %), waste materials and residual materials (-4.5 %) as well as data processing equipment, peripheral equipment and Software (-4.5 %).

In contrast, prices for cereals, raw tobacco, seeds and animal feed (+3.6%), fruit, vegetables and potatoes (+2.5 %) and tobacco products (+4.7 %) in wholesale trade were higher than in September 2019.

Reuters reports that the Bank of England asked banks on Monday for information about their readiness for zero or negative interest rates.

“As part of this work, we are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Deputy BoE Governor Sam Woods said in a letter to banks.

Woods said he wanted to know if there were any technology challenges to implementing zero or negative rates.

The BoE set a deadline of Nov. 12 - a week after its next monetary policy announcement - for banks to respond to its request for information on the impact of negative rates.

The BoE is widely expected to announce on Nov. 5 that it is increasing its bond-buying programme again to help Britain’s economy as it tries to recover from its record slump earlier this year caused by the coronavirus lockdown.

During today's Asian trading, the US dollar rose moderately against the euro and declined against the yen.

Traders continue to monitor the progress of discussions on a new package of measures to support the US economy. On Friday, the White house nearly doubled the size of its offer to $1.8 trillion. Over the weekend, however, both House Democrats and Senate Republicans opposed the proposal. According to the speaker of the lower house of the US Congress, Nancy Pelosi, this proposal is "not enough to meet the needs of families."

On Sunday, US Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows, in a letter to members of Congress, called for legislation to distribute the balance of funds allocated under the Paycheck Protection Program, which covers business payroll expenses.

The dollar rose significantly against the chinese yuan. On Saturday, the People's Bank of China (PBOC) announced the cancellation of mandatory reserves for certain currency transactions from Monday.

The ICE index, which tracks the dynamics of the US dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.03%.

eFXdata reports that Bank of America Global Research discusses its expectations for the global economy into year-end.

"We expect the global economy to weaken in 4Q. The strong rebound in 3Q was temporary, driven by base effects from the 2Q lockdown. We have actually been surprised the market reacted so positively to the strong 3Q data. We expect reintroduction of COVID-19 measures in most countries, and particularly in Europe, will also contribute to a weak 4Q. We note the US economy continues to perform better than most of the rest of G10," BofA notes.

"We see further USD and JPY strength in 4Q. We forecast EURUSD at 1.14 and USDJPY at 103. These forecasts looked aggressive during the summer, but we believe are reasonable following the market correction in September," BofA adds. 

Bloomberg reports that according to JPMorgan Chase & Co., if Democrats do “sweep” the November elections and increase capital gains taxes, it would be unlikely to cause more than a temporary slide in the U.S. stock market, 

If a higher rate become effective Jan. 1, 2022, there would probably be some downward pressure in equity markets in the fourth quarter of 2021, according to JPMorgan strategists led by Nikolaos Panigirtzoglou. But once the new rate was in place, stocks would likely resume their upward trajectory, as they did in the first halves of 1987 and 2013 following increases on some capital gains.

“Longer term, we see little impact from a prospective capital gains tax rate increase on risk taking and investors’ attitude toward equities as an asset class, given the current low yield and high equity risk-premium environment,” the strategists wrote in a note.

JPMorgan estimates there could be tax-related equity selling of about $200 billion around a prospective increase in the capital gains rate, impacting U.S. stocks by about 5% -- similar to what was seen in late 1986 and 2012.

“But such pressure is likely to be temporary, and once the new capital gains tax rate is introduced, the equity market would likely resume its uptrend in even stronger manner,” the strategists said.

FXStreet reports that per the analysts at Goldman Sachs, a blue wave referred to as the Democrat's control of the presidency and both chambers of Congress will become a positive catalyst for energy commodities.

"It should, however, be noted that US President Donald Trump has taken note of these polls and recently took a U-turn on the coronavirus (COVID-19). However, nothing could roll out the much-awaited stimulus measures as the Democrats are steady as a rock on their demands. Although such forecasts keep commodity traders hopeful, caution ahead of the event may challenge the risk trades". 

Reuters reports that the State Secretariat for Economic Affairs (SECO) said that Swiss economic output will shrink by 3.8% this year, a less bad coronavirus-triggered slump than previously expected.

The latest SECO forecast was an improvement from its June outlook when it said it expected Swiss GDP would fall 6.2% this year, the worst downturn since 1975.

For 2021 SECO said it expects the Swiss economy to grow by 3.8% when adjusted for income for sporting events, a slower recovery than the 4.9% level that was previously anticipated.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1938 (2611)

$1.1913 (4021)

$1.1893 (529)

Price at time of writing this review: $1.1818

Support levels (open interest**, contracts):

$1.1752 (1066)

$1.1727 (918)

$1.1697 (1093)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 6 is 48851 contracts (according to data from October, 9) with the maximum number of contracts with strike price $1,1800 (4021);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3204 (781)

$1.3161 (1005)

$1.3114 (1682)

Price at time of writing this review: $1.3039

Support levels (open interest**, contracts):

$1.2952 (826)

$1.2911 (325)

$1.2860 (153)

Comments:

- Overall open interest on the CALL options with the expiration date November, 6 is 30463 contracts, with the maximum number of contracts with strike price $1,3950 (3694);

- Overall open interest on the PUT options with the expiration date November, 6 is 21640 contracts, with the maximum number of contracts with strike price $1,2050 (2420);

- The ratio of PUT/CALL was 0.71 versus 1.13 from the previous trading day according to data from October, 9

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.