Anticipation Of Trade Talk Progress
According to Bank of England Chief Economist Andy Haldane the UK economy faces extraordinarily large uncertainties with risks skewed to the downside. He also stated that the prevailing economic narrative is unduly negative with positive news receiving less attention than it deserves. As to negative interest rates, he stated they could only be implemented if operational issues could be resolved, further stimulus was needed and the benefits of negative rates out-weighed the costs. None of these conditions, according to Haldane had yet been met and Sterling edged higher following the comments.
The UK currency secured further gains later in the day following the announcement that the UK had secured a fishing deal with Norway. The deal increased speculation that there would be a trade agreement with the EU with some anticipation of progress in crucial talks due to finish in Brussels on Thursday.
Month-end positioning also brought in some volatility with the UK currency pushing to highs near 1.2950 against the Dollar and 1.1030 against the Euro. There was another stark warning over the coronavirus situation from Prime Minister Johnson which caused Sterling to pause. Markets will continue to monitor trade developments closely.
ADP data recorded an increase in private-sector payrolls of 749,000 for September after a revised 481,000 increase for the previous month and above market expectations of 650,000. The data should not have a major impact on expectations surrounding today’s employment report with solid growth expected.
The Chicago PMI index strengthened sharply to 62.4 for September from 51.2 previously, well above market expectations of 52.0 and the strongest reading since December 2018 with significant gains for all the components. There was also a further strong reading for pending home sales.
San Francisco Federal Reserve (Fed) President Daly stated that the US economy is not out of the woods and that further fiscal support is needed.
There was fresh speculation over a fresh fiscal stimulus package which helped underpin risk sentiment, although there was still an important element of caution. In this context, equities dipped sharply later in the session following reports that there was still no agreement on a fiscal package. There was an additional element of uncertainty as major airlines announced that substantial redundancies would take place unless wage subsidies are approved. Moderna stated that its vaccine would not be ready before the US election with the company not seeking FDA approval for any user groups until late November at the earliest.
German unemployment declined 8,000 for September following a 9,000 decline the previous month and in line with consensus forecasts.
ECB President Lagarde stated that strategies on inflation should be examined, reinforcing expectations that the central bank would look to adjust its target over the medium term. ECB council member Villeroy also discussed a potential move to a symmetrical inflation target which could weaken the Euro, although the overall market impact was limited.
The Euro moved lower heading into the US session with a test just below the 1.1700 level as the Dollar attempted to regain some ground. As of writing, the Euro currently trades around the 1.1745 mark against its US counterpart.
Data to watch
09:30 – GBP – Final Manufacturing PMI
13:30 – USD – Core PCE Price Index
13:30 – USD – Personal Spending
13:30 – USD – Unemployment Rates
15:00 – USD – ISM Manufacturing PMI