EU Summit Continues Ahead of Service and Manufacturing Data from the UK and Eurozone

Last week Sterling was treading water as it continues to deliberate what COVID-19 and Brexit means for the longer-term prospects of the nation. Last week’s reading monthly GDP highlighted this uncertainty. The monthly GDP saw a 1.8% monthly rise in May, well below expectations of 5.5%. In the meantime, UK employment data whilst better than expected, received a tepid response as several companies continue to announce job losses and there is concern that this figure could rise in August as the governments contribution to furlough payments drops with the employer making up the difference. US economic data continues to remain positive. Last week, US retail sales, industrial production and Philadelphia manufacturing data all reported better than expected readings. However, the tone remains cautious as new COVID-19 cases hit a record high in the US of excess of 75,000. The market remains cautious about what this could mean for the US economy. Whilst economic data remains positive, it is backward looking, and the market will keep an eye on COVID-19 and what impact it could have on future data. The focus of the week was on the EU economic summit with the market glued to developments surround the recovery fund. The meeting has extended beyond the weekend and will continue today. The EU recovery fund would be borrowed via instruments on the financial markets, to be paid back sometime after 2027. Leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out

2020-07-27T16:34:54+00:00July 20th, 2020|

The “Risk On” Run Comes to an End Giving Strength to the US Dollar

Last week we saw a “risk off” mood following the increase in risk assets in recent weeks amid concerns of a second wave of Covid-19 infections, especially with reports of rises in cases in the US. Compounding the “risk off” mood was the decision taken by the Fed to keep rates at the zero lower bound and maintained asset purchases under QE “at least at the current pace”; whilst leaving the door ajar for further expansion. There was some speculation that QE would be expanded further. The latest median forecasts from individual committee members indicated that the interest rate was expected to remain at zero until the end of 2022 (only 2 members indicated rates higher in 2022). Closer to home, UK Prime Minister Johnson and EU Commission President von der Leyen have agreed to intensify trade negotiations with a further meeting due this week, and a transition extension is likely to be ruled out formally. UK April GDP shrank by 20.4% - the largest monthly contraction on record as the UK spent its first full month in lockdown. However, market reaction was tepid as markets have acclimatised to negative backwards looking data. Meanwhile, economic data from the Eurozone added to the negative sentiment as Eurozone April industrial production dropped by 17.1% following an 11.9% decline in March. Italian industrial production declined 19.1% for April following a 28.4% for the previous month with a shocking 42.5% annual slide. The data reinforced concerns over the Italian outlook and wider Euro-zone

2020-06-22T15:07:12+00:00June 15th, 2020|