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Chancellor Sunak outlines economic emergency

Chancellor Sunak outlines economic emergency


Chancellor Rishi Sunak’s spending review stated that there would need to be a further £55bn in coronavirus support for the next financial year as the economic impact had only just started. The Office for Budget Responsibility has forecast that, UK GDP will contract 11.3% for 2020 and is not expected to regain pre-covid levels until the end of 2022. The government borrowing requirement was forecast at £394bn for the current year(19% of GDP) with a decline to £164bn next year. Sterling drifted lower amid the unfavourable comparison with other major economies and unease over the medium-term fundamentals. The very high borrowing requirement will also maintain pressure for further Bank of England bond purchases.

Brexit developments are being watched and EU Chief Negotiator Barnier threatened to walk out of talks if there was no shift in UK stance within the next 48 hours. EU Commission President von der Leyen also stated that there was still a lot of work to do, although added that progress had been made. 

Sterling consolidated just below 1.3400 against the Dollar while the Euro settled just above 1.1235. Brexit headlines could trigger sharp moves especially with month-end positioning and English coronavirus tiers will be announced on Thursday. 



US initial jobless claims increased to 778,000 in the latest week from a revised 748,000 the previous week and above market expectations of 730,000. Continuing claims declined to 6.07mn from 6.37mn previously and close to consensus forecasts, but the data overall triggered fresh concerns over near-term trends in the labour market. Durable goods orders increased 1.3% for October on a headline and underlying basis while new home sales declined marginally to an annual rate of 1.00mn and well above market expectations as data in the housing sector remained very strong. Personal income declined for October while spending edged higher.

The PCE core prices index was unchanged for October, slightly below expectations of 0.1%, with the year-on-year increase at 1.4% from 1.6%. This gauge is a key inflation indicator for the Federal Reserve and will reinforce expectations that monetary policy will need to be extremely supportive in an attempt to raise the inflation rate.

Federal Reserve minutes from the early November meeting tended to focus on the outlook for asset purchases. Several committee members suggested that the Fed could lower the total amount of purchases but still provide as much support if it bought longer-term bonds and the minutes maintained expectations of a loose policy.



The Euro pushed sharply higher against the Dollar yesterday with a more determined break above the 1.1900 level, although there was selling interest on rallies.

Germany reported that their partial lockdown measures would be extended until December 20th, maintaining near-term unease over euro-zone economic trends. The Dollar, however, still remains under pressure this morning amid flows into other currencies with the single currency hitting multi month highs of 1.1940.

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