Crucial Week Ahead For Trade Talks
Overall confidence surrounding the UK economy still remains weak although there was some evidence that UK coronavirus cases were starting to stabilise whilst further speculation that the departure of UK PMs Chief Adviser Dominic Cummings would trigger a more appeasing stance towards the trade talks with the EU.
Over the weekend, there were some optimistic comments from UK government officials regarding trade talks, but EU officials were also quick to state that there had been less progress than they had hoped for. UK sources added significant gaps are still there on both sides and that talks were likely to miss another deadline with negotiations extending beyond this week.
Sterling edged lower at the Asian open but gradually regained ground as the Dollar retreated. Markets still expect a trade deal to be secured this month with the UK currency trading just above 1.3225 against the Dollar and at 1.1155 against the Euro.
US producer prices increased 0.3% for October from 0.4% previously with a 0.5% annual decline while core prices increased 1.1% over the year and close to consensus expectations. Markets remained very confident that the very expansionary Federal Reserve monetary policy would continue.
The University of Michigan consumer confidence index declined to 77.0 for November from 81.8 previously and below consensus forecasts of 82.0. The current conditions index was little changed while there was a notable decline in the expectations component.
The dollar overall lost ground amid forecasts of sustained negative real interest rates and the Euro secured tentative net gains to the 1.1830 area. The dollar edged lower on Monday and the Euro nudged higher to the 1.1850 area as the Chinese yuan posted 1-month highs and commodity currencies made headway.
Eurozone fourth quarter GDP data revised slightly to 12.6% from the earlier estimate of 12.7% to give an annual decline of 4.4%. Employment increased 0.9% on the quarter which provided some relief, although there was a 2.0% annual decline and labour-market reservations continued.
There were further concerns over the short term Eurozone economic outlook with reports stating that Italy would extend its regional lockdown system to beyond the 3rd December. The German government also warned that it was too early to talk about a turnaround in covid infections and no easing of restrictions was possible yet. The government will meet again on Monday to discuss the situation with expectations that there will be a further tightening of restrictions.
As of writing, the Euro currently trades over the 1.1850 mark against its US counterpart.
Data to watch
10:00 – EUR – ECB Financial Stability review
14:00 – EUR – ECB President Lagrade Speaks