Sentiment Takes a Dive Ahead of US Independence Day Weekend

Last week the focus was firmly on the prospects of a second wave of COVID-19 in the US. Last Monday in New York City, restaurants resumed sit-down service with outdoor-only seating. However, on Thursday, the US reported a new record for daily COVID-19 cases, with an increase of more than 40,000, exceeding the previous daily record in April. By Friday, Texas and Florida ordered bars and taverns to close. So far, new cases have been restricted to four states Arizona, California, Florida, and Texas which saw US daily case numbers jump sharply in June. The market will be watching closely as this story develops. If sentiment slides as a result of COVID-19 second wave fears growing, then the US Dollar could strengthen as a result. Compounding the decline in sentiment has been the mounting trade tensions. It was reported last week that the US is considering imposing additional tariffs on imports from the EU and UK. The IMF, meanwhile, revised down its 2020 global growth forecast to -4.9% from -3.0% in April. Focusing on the UK, it was publicised that air bridges are due to be announced over the coming days whilst the government announced that social distancing will be cut from 2 metres to just over 1 metre. On Friday, UK Chancellor Sunak stated that the UK is past the acute phase of the crisis while the furlough scheme will not be sustainable. Over the weekend Prime Minister Boris Johnson stated that the UK would be prepared to

2020-06-29T16:22:54+00:00June 29th, 2020|

Sentiment Shifts Towards Risk-Off Due to Brexit

Last week was a volatile one in markets. Equity markets continue to fluctuate amid signs of improving economic conditions as lockdown restrictions ease and concerns that Covid-19 cases are rising again in some countries. Two weeks ago, there was a sharp sell-off in equities among reports of new coronavirus cases in Beijing and an acceleration of the number of cases in several US states. Confirmation from the Fed of its intention to buy corporate bonds and reports that the US government is considering a $1trn infrastructure spending boost, helped push US equities up earlier in the week. Despite some further wobbles later in the week, most equity markets seemed set to end the week higher. Sterling has slipped to its lowest since the end of May against the US Dollar and to its lowest since March against the euro. This, despite a rise in UK market interest rate expectations as no BoE members voted for a further cut and QE did not go beyond expectations. The “risk-on and risk-off” tone as well as the ongoing trade talks for Brexit remain two risk factors for Sterling.  Some reports suggest that growing concerns about the lack of progress in UK-EU talks surrounding the future relationship may be helping to drive down the pound. This week there will be a lot of focus on PM Johnson on Tuesday, he will be discussing the likelihood of the hospitality sector reopening on 4 July and if the 2 meter social distancing rule in England

2020-06-22T15:19:10+00:00June 22nd, 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|

“Risk On” Overshadows Lack of Progress in UK/EU Trade Talks

Sterling rallied last week despite the lack of progress in the UK/EU trade talks. The “risk on “tone took centre stage downplaying the negative sentiment surrounding the UK/EU trade talks. Equity markets surged with several markets up by more than 8% for the week. The US dollar slipped against both the euro and sterling. The positive tone was further confirmed with the oil price rising to its highest level since early May. The surprise data of the week was the US employment data, some forecasts posted expectations of a further reduction in jobs between 7.5m- 10m. However, non-farm payrolls rose by 2.5m last month. This could be a remarkable turnaround. The unemployment rate was expected to be close to 20% not far off the Great Depression peak of 24.9%. The increase in jobs pushed the rate down to 13.3% in May, from 14.7% in April. In the meantime, as expected the latest round of UK-EU trade talks showed no progress on major areas of contention, according to Brussels’ chief negotiator. Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen will meet at a yet to be confirmed date this month to bridge gaps in the two sides’ mandates. Sterling has been resilient despite the lack of progress, which may be down to a case of déjà vu as far as talks between the two parties is concerned. The ECB also helped improve sentiment as it over delivered by increasing its PEPP envelope by €600bn to €,350bn

2020-06-22T15:03:48+00:00June 8th, 2020|

Market to Focus on UK/EU Trade Talks Whilst US Unemployment Could Hit 20%

Last week Sterling manged to reclaim some of the losses of recent weeks as comments from various BoE officials helped taper concerns of the prospect of negative interest rates ahead of the economy preparing to reopen. Today, schools reopen their gates to a limited number of year groups, car showrooms and open-air markets are due to reopen as are non-essential retailers in a couple of weeks’ time. This could give the economy a further boost. However, gains maybe limited as UK-EU trade talks are scheduled. Across the Channel we saw the European Commission (EC) announce a 750-billion-euro ($824 billion) plan to prop up the EU economies hammered by the coronavirus crisis. Under the proposal, the EC would borrow the funds from the market. The EC will disburse two-thirds of this in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic. In the meantime, the US Dollar was weaker as the “risk on” tone increased as the EC released their stimulus measures and the easing of lockdown. However, US-China geopolitical tensions could have an impact on market sentiment if we see this increase. This week the calendar is packed with both political events and economic data taking centre stage. The UK will be focus on the tone of the trade talk talks surrounding the future relationship between the nation and the EU. These will be led by the UK’s David Frost and the EU’s Michel Barnier, with

2020-06-22T15:05:07+00:00June 1st, 2020|

UK Continues to Debate Negative Rates, Cummings and Further Relaxing of Restrictions

Last week, Sterling remained resilient despite being under pressure. The topic of negative interest rates continues to dominate the market concerns for the UK. During a testimony to the Treasury Select Committee, Governor Bailey stated that the bank does not rule out any instrument in principle. Bailey stated that a move to negative interest rates was not ruled in or out and the evidence would have to be considered closely. This resulted in in the latest UK government 3-year bond auction recording a negative yield for the first time on record. This comes while in the US, the minutes from April’s Federal Reserve meeting reiterated that it was committed to using all available tools to support the economy but there was no support for negative interest rates. Over the weekend and during the bank holiday (UK & US) on Monday we have seen several developments from the UK.  Focus was firmly on the actions and reactions of Government regarding Dominic Cummings. Many are still calling for his resignation so the pending pressure over the next few days could be interesting especially as the UK heads toward the deadline for an extension in trade talks at the end of June. During yesterday’s Covid-19 briefing, PM Johnson stipulated that non-essential shops in England can reopen from 15 June, rates of infection permitting. Outdoor markets and car showrooms can open from 1 June. Yesterday with Europe open, we saw some more positive data from Germany. German business sentiment rose in May, beating

2020-06-22T15:06:43+00:00May 26th, 2020|

Sterling Slides on Economic Sentiment and Lack of Progress from Trade Talks

We saw the US Dollar strengthen across the board last week as a “risk off” tone took effect in global markets. The change in sentiment was driven by concerns surrounding the speed of economic rebound as well as the growing tensions between the US and China. Compounding the negative sentiment were comments from US Fed Chair Powell and BoE Governor Bailey in interviews last week. Both Powell and Bailey highlighted concerns that economic recoveries may be slow and that there are risks that the downturn may cause more permanent damage to economies. In addition, there has been some speculation that interest rates may be cut below zero in both the UK and US. However, both Powell and Bailey stated that this was not something that was being considered for now. President Trump is in favour of negative rates and may continue to pressure FOMC Chair Powell. Compounding Sterling concerns further were news reports surrounding lack of progress in trade talks between the UK and EU ahead of an important deadline with Sterling falling by over 2% versus the Euro on this news. On Friday, it was revealed that very little progress has been made with both sides calling on the other to change their approach. The end of June European Council deadline for organising an extension of the Brexit transition period draws closer, bringing another cliff edge into view. There are no further Brexit talks until June 01. Looking to the week ahead, it’s a busy week for economic

2020-05-18T16:01:21+00:00May 18th, 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|

Market Weathers Weak Data Readings as it Waits for the Monthly US Labour Data on Friday

Last week was a calmer week in turns of economic data. Whilst economic readings remains to the downside, the market has been prepared to weather very weak near-term economic data, with the hope that the second half of the year bounces back as lockdown restrictions ease. GDP data from both the US and Eurozone were released with both regions producing negative readings (-4.8% and -3.8% respectively). However, as the lockdown effectively came late in the quarter, the market had already turned focused to the reading for Q2. The data focus for the week was once again on the US weekly jobless claims ahead of this week’s government labour data. The headline figure showed that 3.8m Americans filed new claims for unemployment benefits last week, bringing the six-week total since the start of the lockdowns to more than 30m. In the meantime, the market continues to focus on economic readings from China as they emerge from lockdown. The April data was mixed as manufacturing PMI fell, and non-manufacturing rose, however both readings were in expansionary territory. The ECB meeting also took place last week, where they added to its previous measures by launching another lending scheme and lowering the interest rate on one of its existing schemes. More importantly for the markets is the promise from the central banks that policy will continue to be very loose for a long period of time. Looking to the week ahead, the UK has a shortened week ahead of VE Day, but the

2020-05-04T14:31:16+00:00May 4th, 2020|

Data in Review, PM Johnson Returns and Possible Lifting of Lockdown Restrictions

Sterling saw a souring of sentiment last week as concerns over economic data and Brexit trade talks grew. Taking a look at the economic data, whilst weak readings were expected, reality actually saw figures fall below even that expectation, with PMI data from the UK posting record lows as lockdown consequences took effect on the nation’s economic activity. We saw the flash services PMI’s fall to record lows of 12.3 last week and UK retail sales fell sharply by 5.1%m/m in March despite strong grocery sales; all of which pointing towards an extremely tough few months for the UK economy. On the Brexit front, EU Chief Negotiator Barnier criticised the UK for not engaging seriously on some topics, insisting that there will be no partnership trade deal with the UK unless an agreement had been reached on the level playing field and fisheries areas. Barnier, however, stepped back from directly calling for a transition extension at this stage. Currently, lockdown restriction will be reviewed on 7 May, as the government balances demands to reopen the economy, with risks of a second wave of infections. In Europe, there were mixed signs as the German ZEW and IFO surveys returned contrasting results. The primary focus was on the expectations reading (6-month outlook), the ZEW improved significantly whilst the IFO declined slightly. EU leaders agreed that a longer-term recovery fund is “needed and urgent” but failed to agree on its details including how it would be funded. Over the weekend we saw

2020-04-28T10:30:58+00:00April 27th, 2020|