Sterling Remains Supported as UK/EU Trade Negotiations Resume

Last week, we saw Sterling remain resilient despite underlying concerns over employment and being plunged into its deepest recession on record as the coronavirus lockdown saw the economy contract by more than a fifth in Q2. With the furlough scheme coming to an end in October there are obvious concerns. However, the monthly GDP for June, which may be seen as timelier, was higher than expected at 8.7% against 8.1% following the easing in lockdown measures. The market will be keen to see if the UK activity can sustain this momentum in the coming months. In the meantime, the UK confirmed that the next round of Brexit talks will take place in Brussels this week with negotiators. Plans include a dinner on Tuesday and a press conference on Friday, leaving only two full days of talks. This suggests that the potential for any breakthrough in negotiations remains limited. Nevertheless, UK chief negotiator Frost stated that a deal was achievable in September and Irish foreign minister Martin also stated that there was scope to find a landing zone in the negotiations. Elsewhere sentiment remained to the upside as broader economic data saw stocks and commodities climbing, a significant development as the Pound has shown itself to be a 'risk-on' currency. Eurozone industrial production rose strongly for the second straight month in June at 9.1% higher than in May; the largest rise since records began in 1991. In the US, the weekly jobless claims dropped below 1m; the first time since

2020-08-17T10:48:54+00:00August 17th, 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|

FOMC Meeting and US and EZ GDP Set for Release

Last week, the Euro pushed to the highest level seen against the US dollar since 2018 following the agreement between the EU 27 member states on how the Recovery Fund will operate. Leaders of 27 European Union countries reached a unanimous agreement on 750 billion euros ($860 billion) in coronavirus recovery funds, divided into grants worth 390 billion euros and low-interest loans worth 360 billion euros. It was the breakdown that took time to agree. It was vital that this was passed as the funds will be raised by the EU Commission using its AAA rating while there will be changes to EU rebates. The AAA rating means they will be able to borrow cheaper as a collective rather than individual countries; for example, Greece’s S&P rating is BB-, this is 9 notches lower than AAA. As a result, EURUSD has pushed circa 4.5% higher from the low of the month. In the meantime, sterling benefited against the US dollar as a result of the move on EURUSD but subsequently moved lower against the single currency. GBPUSD is now trading at its highest level since March against the US dollar despite ongoing uncertainty about the progress in talks between the EU and the UK on their future relationship. Economic data also helped pushed the currency higher as retail sales, service and manufacturing data all improved. The US dollar was on the back foot as concerns about deteriorating relations with China and that the US economic rebound is faltering prompted

2020-07-27T16:45:30+00:00July 27th, 2020|

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|

Big Week of Economic Data Whilst Brexit and COVID-19 Concerns Remain

Last week was a mixed week for sentiment, with many eyes on the downside due to concern of an increase in COVID-19 cases in the US - new cases growing to north of 60k a day with Florida reporting in excess of 15k a day. In recent weeks, economic data from the US has been to the upside, but as a result of the recent surge Federal Reserve policymakers have warned that activity may be “leveling off” and that more fiscal support may be necessary. In the meantime, UK Chancellor of the Exchequer Rishi Sunak’s Summer Economic Update outlined the second phase of job retention measures. This has come in a three-step plan focusing on jobs, including a Job Retention Bonus to keep furloughed employees in work, a Kickstart Scheme for 16-24-year olds and targeted measures for hospitality and housing. Brexit newswires have been mixed and are likely to remain as such for the foreseeable future. It is difficult to say when exactly talks will conclude, given they had ended earlier than scheduled in the past two weeks; is this a good or bad sign? There were reports that the EU could be willing to compromise on the issue of fishing rights. Cabinet Minister Michael Gove said on Sunday progress was being made in talks but there were still divisions. Gove went on to say, “at the end of this year we are leaving the single market and Customs Union regardless of the type of agreement we reach with

2020-07-13T14:56:02+00:00July 13th, 2020|

Sentiment Remains to the Upside but Headwinds Persist

Last week it was a mixed week both in terms of data and sentiment. Starting with the downside, Covid-19 concerns and Chinese tensions increased. There was a rise in Covid-19 cases in several countries last week. The US recorded a record high of close to 60k new cases a day, prompting some reversal of restriction easing. Latin American countries have also seen an escalation. In the UK, Leicester was put into lockdown again, as the rest of the nation reduced restrictions further. In the meantime, in the geopolitical arena China’s passed its Hong Kong national security law resulting in sanctions from the US, whilst the UK expressed it displeasure. Despite the negatives, we saw risk sentiment increase. Signs of improving economic conditions were helped by positive reports about progress in developing a Covid-19 vaccine. The headline data release was the US labour data; the US gained 4.8 million jobs in June, far better 3 million expected. In addition, the unemployment rate fell from 13.3% to 11.1%. Central Bankers have also noted that so far, the economic rebound was proving to be stronger than forecast, this may have added to the more upbeat mood. The UK/EU trade talks were slightly disappointing as discussions between the chief negotiators broke up a day earlier than expected; it is assumed they will resume in the coming week. However, supporting Sterling was Chancellor of the Exchequer Sunak’s update to the House of Commons regarding the economic outlook. PM Johnson said that the focus of

2020-07-06T16:31:00+00:00July 6th, 2020|

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|