The economics of the G10 nations could not be more different.
Europe is straining under the pressure of their third wave and COVID cases are likely to top levels seen during the initial wave in March. GDP in the final quarter is expected to contract by over 6% and mass unemployment is expected if cases don’t slow soon.
Nations to watch are France and Italy, both are struggling to cope with their respective issues.
The US is on track to register over 200,000 cases a day this week (most likely by Tuesday) as California joined other states in adding restrictions to movement, this time in the form of a curfew at 10pm. This clamp down is starting to materialise in the jobs and retail data. US weekly initial jobless claims ticked up last week to 742,000 however continuing claims pulled back to 6.37million. Retail Sales for October showed ‘stalling signals’ suggesting November will see a contraction despite having the big ‘sales days’ of Black Friday and Cyber Monday this week.
US business surveys were also mixed and showed risk signs with the Philly Fed business survey falling to 26.3 in November from 32.3. However, this is still strong and higher than any reading in 2019. But activity and new orders pulled back solidly.
The Kansas City Fed survey contracted to 11 from 13 but it’s the forward-looking new orders fell to 19 from 26 and export orders fell to -10 from +1 that is an eye watering fall and signals softening is coming.
Fed officials are expressed their concerned around the economy losing momentum and needing more fiscal and monetary support. Robert Kaplan suggested that the maturity of QE could be lengthened at the December meeting, but does not favour increasing the quantity. He went on to say all the economic risks are to the downside, ‘the next couple of quarters will be challenging’.
Then you have Australia which last week reported a stunning 178,000 jobs created in October with 82,000 of that coming from Victoria. What is even more interesting is that Australia is now only 1.7% (220,000) away from the pre-COVID employment level set in February. The caveat here is that participation is starting to grow as well and explains why the unemployment rate ticked up to 7.1%. The governments JobKeeper program has also begun to roll off which will is affecting these numbers. But whatever way you cut them the numbers are good.
These differences in the economics set ups are playing out in FX.
AUD/USD is head back toward $0.73 as risks in Australia look positive. If Service and Manufacturing PMI this week show expansion than Australia has entered economic expansion for the first time in several years.
The EUR and GBP on the other hand are flat line against the USD as the risk on both sides of the Atlantic ramp up. EUR/GBP is also something to watch as we approach the final stages of Brexit.