The main event of the day was charming Chancellor Rishi Sunak’s announcement of a £30bn support package for the economy featuring a number of initiatives. A new job retention scheme aiming to encourage employers to retain employees once the furlough scheme ends in October, a £1,000 bonus for every employee retained until the end of January. There were tax cuts for housing with a temporary increase in stamp duty thresholds, now £500k and a temporary VAT cut to 5% for the hospitality sector. Sunak also announced a subsidy to support eating out, already dubbed the “meal deal”. Although the package was slightly larger than expected markets had already priced in a substantial stimulus and so the Pound failed to make further headway, especially with underlying fears over budget deficit trends.
Dollar weakness later in the session allowed the Sterling to rise to the 1.2600 area and the Euro consolidated around 1.1111. The RICS housing index strengthened to -15 for June from -32 in May and the sector will gain a boost from the cut in Stamp Duty. Sterling held at 3-week highs above 1.2600 against a weak Dollar in Europe and the Euro is hovering close to 1.1111.
The dollar overall lost ground as equity markets stabilised and there was also evidence of underlying US currency selling given that the recovery in US equities was limited. Boston Federal Reserve (Fed) President Rosengren stated that the recovery will remain weaker than hoped through the next few months.
Overall confidence in US fundamentals deteriorated and there was also a decline in real yields as inflation expectations increased. The lack of yield support could prove an important negative factor for the US currency which against the Euro strengthened to the 1.1350 area at the European close.
The German DIHK institute forecasted that exports would decline by 15% in 2020 before recovery of 7% 2021. ECB Vice President de-Guindos stated that Europe should be more optimistic over growth whilst the debate surrounding ECB proportionality was now in the past. Markets overall remained more confident that the German Constitutional Court ruling would not disrupt the central bank’s bond-buying plans which helped underpin the Euro.
There was a further debate surrounding the EU recovery fund with meetings likely to accelerate ahead of next week’s EU Summit with Council President Michel stating a workable solution needed to be found quickly and that there was still a lot of work to do.
As of writing, the Euro trades around the 1.1360 mark against the Dollar.
Data to watch
All Day - EUR - Eurogroup Meetings
12:30 - USD - Unemployment claims
Posted in Daily Market News on Jul 9 2020