Last week we saw the news focus on the rise of COVID cases in the UK and Europe. France and Germany announced on Friday that they will be implementing lockdown measures; which was swiftly followed on Saturday by the UK's own announcement. Despite the negative news surrounding lockdown, we saw economic data paint a more positive picture as both US and Eurozone GDP growth exceeded the massive contractions in Q2. In addition, the German October IFO survey revealed the first rise in expectations in four months. In the meantime, the ECB hinted strongly at further policy changes in December which are likely to manifest itself in further QE. The US election continues to dominate headlines with Americans heading to the polls on Tuesday. The final weekend saw both candidates continue and drive their campaigns towards the finish lines. As it currently stands according to Real Clear Politics is showing the aggregation of betting odds with Joe Biden showing a 64.7% probability of winning. Michael McDonald, a University of Florida professor who runs the US Elections Project stated that as of Sunday afternoon 34,004,455 in-person votes and 59,126,562 mailed ballots had been returned to election authorities; accounting for two-thirds of all 2016 turnout. It is likely that economic data and news may take a back seat this week and the focus will firmly be on lockdown measures and the US Presidential race. However, there is still a loaded calendar with UK and US interest rate decisions and US employment data.
Last week saw Sterling lift following the resumption of UK/EU trade talks, after the early week’s standoff between the two respective trading blocks. Whilst fishing and a level playing field remain sticking points, the objective is to conclude discussions for an emergency EU summit in the middle of November. In the meantime, UK Chancellor Sunak announced a more generous Job Support Scheme starting in November as furlough ends this week. Data from the UK remains mixed with retail sales posting slightly better than expected, but the composite PMI activity showed a slowdown in momentum. However, Brexit trade talks and negative rates continue to dominate newswires. The US election continues to pick up momentum with no real blows landed in the second and final Presidential debate with the US set to head for the polls next Tuesday. Meanwhile, it has been reported that early voting has accounted for nearly a third of the total vote numbers seen in 2016. The week ahead will continue to focus on the progress of the UK/EU trade talks, and the final furlong in the US election, although there are some concerns surrounding current Vice President Pence as members of his entourage have been diagnosed with COVID. The centre of attention for the Eurozone will be the ECB meeting on Thursday, the market is not expecting any stimulus until December so the market will focus on signposting by officials to confirm. Monday German IFO Survey US New Home Sales Markets will
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
Last week further demonstrated the sensitivity of sterling to Brexit negotiations. Developments from Thursday onwards highlighted responsiveness as the currency traded between a 150-pip range as positive and negative headlines hit the wires. Sterling was boosted by news that UK PM Boris Johnson and EC President Ursula von der Leyen agreed that talks will continue to "close significant gaps". Brexit headlines are likely to continue to dictate sterling movements. We saw the headline Euro-zone CPI inflation rate declined below expectations to -0.3% for September from -0.2% previously. The core rate (excluding food and energy) also declined to 0.2% from 0.4% also below market expectations of 0.5%. This was the lowest core reading since the Euro was introduced and will reinforce pressure for the ECB to take additional action to underpin both reported inflation and inflation expectations. The end of the week resulted in some unexpected news as President Trump released the news that he and the first lady had contracted COVID. Concerns heightened over the weekend as they were taken to hospital. News has since been inconsistent. The market will be focused on when he is discharged (rumoured to be early this week) and what the potential implications are on the next TV debate, voting behaviours and the net impact on the election. Looking to the week ahead, the market will be once again focused on Brexit trade talk developments as we approach the EU summit on the 15th of October. In the meantime, the situation surrounding President Trump
Last week we saw the focus on the UK with both Brexit, growing COVID concern and the economic support mechanisms being discussed. PM Johnson announced a tightening of restrictions in England, while other parts of the UK also made some changes. Chancellor Sunak followed this up by announcing further support mechanisms to help following the end of the furlough scheme which expires at the end of October. There was also an extension of the VAT cut for the hospitality sector until March, and some changes to the lending schemes for businesses. Meanwhile, news on the Brexit front was more positive despite the Internal Markets Bill. It has been reported that a Brexit deal is in touching distance. There was generally a risk-off tone in the market as COVID cases across Europe continue to soar with Spain and France reporting over 10,000 rolling 7-day averages. Economic data over the past few months have generally pointed to a stronger-than-expected initial rebound in economic activity in the UK, US and the Eurozone. German September IFO survey showed rises in current conditions and expectations, UK GfK consumer confidence measure rose to a six-month high in September and US manufacturing PMI rose. Looking to the week scheduled to see another set of ‘formal’ negotiations between the UK and the EU on the long-run relationship. Some reports this week have pointed to breakthroughs on some key sticking points. However, the situation remains uncertain and the late December deadline for the end of the transition phase
Last week, sterling price action highlighted its sensitivity to both Brexit and negative interest rate news. The currency started the week on the backfoot as the Internal Market Bill was discussed in the House of Commons where it was highlighted that if passed, the UK has the ability to break international law. This came under criticism from all the living past Prime Ministers and was even attacked by US Presidential Candidate Biden. However, the rhetoric softened as PM Johnson meet with backbenchers and EC President Ursula von der Leyen stated that she felt a deal was still possible. Meanwhile, both the FOMC and BOE met to deliver their latest interest rate policy and relay their thoughts on economic policy. In the US, the Fed’s amendments to its policy guidance talked about allowing inflation to move “moderately” above target for “some time” before it will raise interest rates with the majority touting at least 2023 before interest rates are increased. In the UK, the BoE stipulated the possibility of negative interest rates, increasing the probability they give to a move below zero in 2021 pushing Sterling lower at the time. Concerns of UK economic growth were further compounded as the pace of expansionary data slowed and new COVID cases in the UK remained on an elevated path. Local lockdowns were implemented with concerns of more widespread consequence amidst the ongoing testing capacity debacle. Looking to the week ahead, Brexit and COVID headlines will continue to dominate. Informal talks between the
Last week Sterling fell to multi-month lows against both the US Dollar and the Euro as Brexit negotiations soured following the wording of the proposed UK Internal Market Bill being released. If passed this will breach the Withdrawal Agreement and break international law. As a result, we saw tensions between the UK and EU intensify. The EU commission stated that the emergency meeting of the UK-EU joint committee had not cleared EU concerns over the Internal Market Bill. It rejected the UK contention that it would protect the Northern Ireland peace agreement and called for measures to be withdrawn by the end of September at the latest, and legal action has been threatened. There was confirmation that the talks would continue this week which provided an element of relief. Meanwhile, the big market event of the week was the ECB meeting. In the week prior, there was concern and speculation over the current strength of the single currency, prompting the currency to weaken in the period leading up to the meeting. The ECB made no changes to interest rates at the policy meeting and there were also no changes to the quantitative easing programme with bond purchases continuing under the PEPP scheme. The forward guidance was unchanged with bond purchases set to continue until at least June 2021 and interest rates remaining extremely low. The economic assessment was slightly more optimistic from ECB President Lagarde. She noted that the deflation risks had declined slightly since June despite the very
Last week, the US Dollar made its biggest gain for two and a half months following the sell-off in the stock markets, in particular the Nasdaq (which is tech-led). There was no significant trigger for the sell-off, but commentators have rationalized the long winning streak and potential fears of a second wave of COVID-19. In the meantime, economic data was closely watched from the US for several reasons, including growth momentum, the upcoming presidential election in November and COVID. The headline figure for the week was the US labour data which came out stronger than expected. The headline non-farm payrolls hit expectations of 1.37m, whilst unemployment moved lower and average earnings edged higher. These numbers are likely to help President Trump. Closer to home, tensions between the UK and the EU don’t seem to be easing. The Prime Minister's office is reported to only see a 30-40% chance of a post-Brexit trade deal being agreed with the EU before the end of 2020. Currently, at the time of writing, peer to peer betting exchange Smarkets have the odds of no-deal emerging between the UK and EU before the end of 2020 at circa 60%. Over the weekend further tensions have been cited as Chief Negotiator Frost warned that the EU stance may limit the progress that could be made in the talks which resume on Tuesday. In addition, there are reports of new UK legislation which would over-ride the withdrawal agreement of Northern Ireland which may increase tensions sharply.
Last week the focus was on the Jackson Hole symposium where Powell confirmed that the central bank would adjust the inflation target to an average of 2%. Powell went on to state that employment will be given greater importance in achieving goals. The central bank is now more confident that higher employment will not lead to higher inflation and the economy will be allowed potentially to run at a faster rate to boost long-term employment. The inevitable implication that interest rates will remain at very low levels for a longer period and potentially undermine the dollar. However, there was some positive news as Q2 GDP data was revised to a contraction of 31.7% from 32.9%, slightly stronger than forecast. Economic data was mixed as US durable goods orders increased but consumer confidence declined to a 6-year low. Closer to home Sterling started the week on the back foot as following downbeat Brexit comments from the previous week. However, GBPUSD rose to fresh highs following the FOMC Chair’s comments. Despite the stress to the UK economy the Pound continues to shrug off negative data. The CBI retail sales survey dipped to -6 for August. The CBI stated that sales are forecast to decline at a faster pace in September with a reading of -17 for the expectation’s component. In the meantime, labour-market trends will be an important focus with August employment cut at the fastest pace since February 2009 and companies expect the rate of job cuts to increase further
Last week we saw the US Dollar remain under pressure as economic data raised some question marks about its recovery. A leading indicator for employment, the weekly jobless claims, increased back above a million posting a figure of 1.1m, which was greater than the forecast of 930k. Compounding the recovery question marks was the Philly Fed Manufacturing data which was lower than expected as well as down from previous reports, suggesting that momentum is slowing. Keeping the Dollar under pressure was the sentiment in equity markets, with news from Pfizer that its Covid-19 vaccine was on course for regulatory review in October, has lent support. Sterling had a whipsaw week as both economic data and trade talk news drove the price. Sterling moved lower initially as speculation mounted that tensions between the UK and EU were raised during their trade talks. It was reported in the Financial Times that Brussels has rejected the UK’s opening demands for continued wide-ranging access to the EU for British truckers. During Friday’s press conference, Sterling once again came under pressure following comments from negotiators Michel Barnier and David Frost. The EU negotiator stated that he was "disappointed" and "concerned", whilst UK negotiator David Frost spoke of "little progress". Meanwhile, economic data continues to remain positive for the UK. Retail sales, services and manufacturing data all improved highlighting that the recovery’s momentum is continuing post easing restrictions. It will be interesting to see if the UK can continue this once the government’s schemes end - Furlough and Eat