UK/EU Trade Talks Drive Sterling Whilst US Presidential Elections Remain in Focus

Last week we saw UK/EU trade talks continue with Sterling nudging higher as hope for a deal continues to grow as the time to complete discussions extends and erodes. EU Chief Negotiator Barnier stated that a deal was unlikely by the October 15-16th Summit and instead the meeting will be used as a stock checking exercise to understand the state of play. There were also reports that Barnier had been instructed to keep a hard-line position on fishing, however, UK Chief Negotiator Frost hinted that fishing measures could be phased in – a big change in tone to what has been stated previously. Ongoing signs of progress helped keep Sterling elevated. While Bank of England Governor Bailey stated that the economic recovery had been very uneven across the country and that risks are very much to the downside. He commented that he strongly hoped that there would be a Brexit deal, but the post-transition period would not be easy. He also commented that we must use policy aggressively and actively with the bank by no means out of firepower. In Europe, market data was quiet but, not without some rhetoric from the central bank. The Euro was hampered by fresh speculation that ECB President Lagarde would signal that the central bank would move towards further monetary easing, including the possibility that interest rates would be pushed deeper into negative territory. ECB President Lagarde reiterated that the bank does not target the exchange rate but is paying close attention to

2020-10-20T09:20:30+00:00October 12th, 2020|

Can Congress and US data stem the Dollar bleeding this week?

Last week the US Dollar continued to soften as economic data and politics failed to provide a boost. In terms of economic data, US initial jobless claims increased for a second consecutive week possibly a sign that economic growth may be cooling or faltering. Meanwhile, US second-quarter GDP contracted at an annualised rate of 32.9% after a 5.0% decline for the first quarter. This was the sharpest quarterly contraction on record by a substantial margin albeit expected given the crisis. With a unanimous vote, the Fed maintained the Fed Funds rate, in the 0.00-0.25% range, in line with consensus forecasts. Chair Powell stated that the evidence suggests that the pace of economic recovery had slowed since June and the pandemic is a disinflationary shock. He added that there is clearly a risk of a slowdown in the rate of growth and the labour market has a long way to go to recover. US politicians continue to debate whether to approve a fourth fiscal stimulus package as urged by Fed Chair Powell last week. The problem is that Congress is supposed to go into recess on Friday and some of the existing measures have expired. Sterling is on the front foot as data and comments boost the economy. UK mortgage approvals increased sharply to 40,000 for June from 9,300 the previous month. Further evidence from the Nationwide house price index show prices increased by 1.7% following the stamp duty tax cut. Also, the CBI retail sales report surged in July

2020-08-04T14:06:33+00:00August 3rd, 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|

UK lockdown plans released as BoE leaves door ajar for more stimulus

Markets were focused on three key events last week, the Bank of England rate decision, PM Johnson’s statement regarding the lockdown, and from the US, the labour data figures. Looking further afield, key economic data across the major economies remained negative last week but the market has become acclimatised to this and not reacting as aggressively as they normally would. On Thursday, the BoE left interest rates unchanged at 0.1% and maintained its QE programme at £645bn, however two of its members voted for an increase in QE, whilst the BoE reaffirmed its readiness to provide more stimulus if necessary. The BoE also stated that it is predicting about a 30% plunge in UK GDP in H1, but its central scenario sees activity picking up “fairly rapidly” in H2. On Friday, the US non-farm payrolls confirmed the economy had lost 20.5m jobs in April which sent the unemployment rate soaring to 14.7%, by far the worst number seen since the Great Depression. Prior to this release, the weekly claims rose by a further 3.2 million, the headline figure now stands near 33 million in 7 weeks. The US has now given back all of the employment gains made since the 2008 financial crisis; a 12-year positive streak lost in the space of six weeks. Sunday’s lockdown announcement from the UK’s PM Johnson was eagerly awaited. PM Johnson laid out plans for how the economy could reopen, albeit a conditional plan. PM Johnson has stipulated that people who "can't work

2020-05-11T12:21:20+00:00May 11th, 2020|