Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Chart of the Week: Portugal’s Services Turnover Index
Macro FX
Christopher Dembik
Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
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In the United States, the stimulus saga is doomed to continue this week while in Europe the main point of interest will likely be the EU Summit on Thursday that will focus on Brexit mess and potential new sanctions against Russia and Turkey. As early as today, EU foreign ministers are expected to discuss new sanctions against Moscow for its suspected role in the poisoning of opposition politician Navalny. New sanctions had been proposed by France and Germany. The Brexit mess will also keep attracting attention among investors. Frankly speaking, it is almost impossible to know what might happen this week as we are approaching the soft deadline proposed by the British government to reach an agreement. There is still a great deal of mistrust between negotiators. EU leaders have recently insisted on the need to strictly enforce any UK trade deal, which is a matter of law but also of trust and good faith. On the other side of the channel, PM Johnson has reaffirmed the United Kingdom is ready to end the transition period with an Australian-style terms if a better deal is not possible. At the end of the days, probably at the end of November/early December, we still expect a thin and puny Brexit deal. On the data front, this week, the economic calendar is light as the very important October PMIs, that will certainly guide the ECB’s action in the short term, are not released until next week. The current overall funding conditions in the euro area sovereign bond market reflects expectations of further ECB boost, with Italy’s 10-year and 30-year sovereign bond yields dropping this morning to all time-lows of 0.72% and 1.59%, respectively. The only statistics of interest in the coming days will be the German ZEW tomorrow and a bunch of job market data from Sweden, Turkey, the United States, Australia, the United Kingdom and Portugal. The turnover index is out at 101.57 in August versus a low point at 74.14 in the midst of the global lockdown. Despite better COVID-19 management than in many other Southern European countries, the economy seems to be set for an incomplete V-shaped recovery with the recovery flattening out in August/September. However, the economic outlook is much brighter in Portugal than in neighboring Spain. The positivity rate for Portugal has slightly increased in recent weeks, to 3.5%, but it is still lower than those of France (9.22%) and Spain (10.19%) and the mortality rate remains low and stable. It implies that Portugal will probably has less incentives to implement strict restrictions that will have a negative impact on economic activity, in contrast to the situation prevailing in Spain.
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