Morning Comment 25.11.20
The positive risk backdrop over the past few sessions has seen the Euro edge slowly towards the top of its five month range against the Dollar while underperforming more growth sensitive currencies. Yesterday’s German IFO report came in close to expectations while the EU composite PMI from Monday dipped back in to contractionary territory (<50) in November, at 45.1, led by declining services sector activity. European equity markets continue to perform well as investors eye the easing of lockdown measures in France while reports from the FT suggest that the ECB is considering lifting a ban on European bank dividend payments which has seen the index of bank shares surge from depressed levels.
Hopes of a Brexit deal are still supporting Sterling ahead of the continuation of UK/EU talks in the coming days with the Pound hovering below significant resistance against the Dollar at 1.3400 and .89p against the Euro. On the domestic front UK Chancellor Rishi Sunak will announce the government’s spending plans for the fiscal year 2021-22 in the spending review which is the government’s main fiscal event of the year. As well as the chancellor’s statement (due at 2.30 p.m.) the Office for Budget Responsibility will publish its updated forecasts for the economy and the public finances although this shouldn’t have a major impact on the currency.
US equities continue to push higher in the wake of official acknowledgment of the Biden Presidential victory and yesterday the Dow Jones Industrial Average grabbed the headlines, topping 30,000 for the first time. The incoming Biden administration can now begin formalised briefings with various government officials, in addition to offering access to funds that can finance the transition team. The positive risk backdrop has seen the Dollar come under further selling pressure as investors shed safe haven stores of cash in favour of riskier assets. With Thanksgiving tomorrow there is a heavy data schedule today with the second estimate of Q3 GDP due as well as the Fed minutes from their recent interest rate meeting.Tel: 1800 30 30 03 / +353 (0)1 790 0000
23 Nov 2020
Morning Comment 23.11.20
The Euro made small gains against the Dollar last week but generally underperformed other growth sensitive currencies including Sterling as investors have been reluctant to hold the single currency ahead of likely monetary easing from the ECB at the upcoming December meeting. Volatility was generally low with rising Covid cases and the ensuing lockdowns offsetting the recent optimism over vaccine breakthroughs. Also weighing on sentiment was the refusal of Poland and Hungary to support the EU relief and budget packages which has cast doubt over the timely disbursement of funds across the bloc. This week’s main economic data releases include PMIs from across the region and the German IFO report.
Sterling made slow and steady gains against both the Euro and the Dollar last week as optimism grows that a Brexit deal may be within reach within the coming days. EU diplomatic sources have said that the trade deal is 95% done but warn a crucial breakthrough on fishing, LPF guarantees, and protocols around the deal’s enforcement remain elusive. Meanwhile Brexit talks continue remotely after one of the EU negotiator tested positive for COVID-19 while envoys from the EU’s 27 member states were briefed that negotiations could slip into December as progress remains slow. Economic data over the course of the week was solid and stronger than expected retail sales numbers also helped the Pound. PMIs are the main release this week.
A quiet week for US markets with equities and the Dollar trading within recent ranges as the optimism over recent vaccine breakthroughs has been overshadowed by increasing Covid infection rates. Domestic data was generally weaker which saw US yields push lower as the Fed are likely to remain highly accommodative and this in turn weighed on the Dollar, causing it to close near the lows of the week. Further weighing on the Greenback was the fact that US Treasury decided not to extend a number of emergency loan programs that were set up jointly with the Federal Reserve at the peak of the COVID-19 crisis and that are due to expire at the end of the year. This week’s focus will be on the PMIs and minutes from recent Fed meeting.
18 Nov 2020
Morning Comment 18.11.20
The Euro has seen a mixed performance over the past few sessions; making slow and steady gains against the Dollar while struggling to gain a foothold back above 90p against Sterling. There has been little in the way of domestic news to dictate direction but optimism over vaccine breakthroughs and cautious optimism in Brexit negotiations are the main themes investors are trading around for now. CPI is the main economic release this morning but is not expected to have any market moving impact given the ECB have already signalled that strong policy action will be taken at the 10 December meeting.
Cautious optimism on Brexit negotiations has seen Sterling outperform both the Dollar and Euro in the past few sessions with sources indicating that a deal could be struck as soon as next week. EU chief negotiator Barnier is due to meet with the EU’s 27 national ambassadors on Friday to brief them on progress while another telephone call between PM Johnson and EU Commission President Von der Leyen has also been mooted. Further boosting the Pound this morning was the release of higher than expected CPI numbers which may reduce the possibility of negative interest rates at the margins.
The Dollar has seen a steady decline over the past few sessions as optimism over recent vaccine breakthroughs has seen US equity markets push to record highs and investors have sold safe haven cash holdings in favour of riskier assets. Domestic data in the form of retail sales and the empire manufacturing report also came in weaker than expected which saw US yields push lower as the Fed are likely to remain highly accommodative. Powell spoke yesterday suggesting the economy’s recovery still has a long way to go although developments in vaccine research will help normalcy return.
16 Nov 2020
Morning Comment 16.11.20
The Pfizer vaccine news saw a sharp rise in EURUSD early last week towards the top of its recent range at 1.1900 but that quickly reversed as US yields rose and investors switched to safe haven Dollar buying as rising Covid cases increased the likelihood of lengthier lockdowns across Europe. Also weighing on the single currency was the weaker than expected ZEW report and a fresh warning from ECB President Christine Lagarde against the negative impact on inflation from the strengthening Euro. At the same time comments from ECB members did indicate that the anticipated package of stimulus measures in December looks unlikely to include an interest rate cut following Pfizer’s breakthrough. There are a number of ECB members due to speak this week while economic data includes CPI and consumer confidence
Last week saw a notable pickup in volatility in UK markets with the Pound trading to 2 month highs against the Euro and the Dollar early in the week before weakening once more. Optimism over Pfizer’s vaccine and a sense that the new US President may increase the odds of a successful Brexit outcome were the initial catalysts for Sterling strength but record COVID cases and some cautious tones from European negotiators in Brexit talks triggered selling later in the week. Negotiations will resume in Brussels this week with some hoping that the departure of Johnson’s chief aide Dominic Cummings will increase the odds of a deal before the EU Parliament meets on 23rd November. Economic data this week includes CPI,PPI and Retail Sales.
The big focus for US markets last week was the announcement of Pfizer’s promising vaccine results which fuelled optimism that the world will soon have a potential way out of the pandemic and caused a jump in both US equities as well as yields. Questions about storage, distribution and performance still remain, however, and the initial euphoria was quickly tempered by record Covid cases and hospitalisations which look likely to cause further lockdowns and economic pain at least in the short term. The Dollar saw increased volatility over the course of the week, initially weakening before staging a strong comeback as US yields rose and uncertainty saw the emergence of safe haven demand. Data this week includes Empire Manufacturing,Retailsales, Industrial Production as well as the Philly Fed.
13 Nov 2020
Morning Comment 13.11.20
Euro/Dollar continues to oscillate around 1.18 and the risk backdrop remains mixed. The vaccine news earlier this week has been tempered by the continued increase in COVID cases across Europe and the US, with record levels of hospitalisations in a number of countries. Yesterday ECB President Christine Lagarde sounded a cautious tone despite the vaccine news while this morning the ECB’s Rehn will comment on the central bank’s Strategy Review. On the data front, yesterday’s Eurozone Industrial Production was slightly lower than expected while the focus for today will be on the latest GDP and Employment figures.
Volatility in Sterling has significantly increased this week with Euro/Sterling falling by 2% earlier in the week before regaining over 1.5% since Wednesday’s trading. The Pfizer vaccine news earlier in the week is likely to benefit the UK economy relative to other countries given the importance of Services and the UK’s governments broad portfolio of vaccines. Since then the rise in COVID cases and some cautious tones from European negotiators in Brexit talks have put the Pound under some pressure. On the data front, yesterday’s UK QoQ GDP showed an increase of 15.5% following the fall of 20% earlier in the year.
The Dollar is one of the best performing currencies in G10 so far this week, regaining some of the losses since last week’s US Election. The rising number of COVID cases has boosted the Dollar against a number of risk sensitive currencies while a rise in US interest rates earlier in the week also gave the Dollar a lift. Yesterday US Federal Reserve Chairman Powell said the next few months could be challenging meanwhile discussions continue over a new fiscal package in the US. On the data front, yesterday’s US CPI showed inflation at 1.2% YoY while today the focus will be on PPI and this afternoon’s Uni. of Michigan Sentiment.