Brexit deadline & US election looming
After a US holiday yesterday, financial markets were reminded that the non-stop campaigner President Trump is ‘back, and apparently feeling “so powerful”, as well as wanting to give everyone in attendance at his Florida rally “a big, fat kiss”. A touching gesture.
Tech stocks rallied, and USD returns to safe-haven status, gaining support against a backdrop of skeptism around the likelihood of a fiscal stimulus package being reached in the US, and Johnson and Johnson pausing Covid-19 trials due to an unexplained illness of a patient.
As the election draws near, volatility is bound to increase, with markets wanting a clear winner - the worst case is a long drawn-out legal battle post-result.
GBP: PM Johnson has warned the EU that the deadline is very close – a message suggesting that this week is a pivotal one for the UK to cover fishing rights, the details of the Irish border, and to finalise conditions around state aid. Last week saw GBP rally, and sustain the move, as rumours swirled that agreement may have been reached surrounding state aid – theoretically, this leaves only 2 or 3 issues outstanding issues, but the UK and EU still seem so far apart, markets find it hard to judge.
Domestic data from the UK showed UK unemployment ticking higher, to 4.5% in August (vs 4.3% previously), although the number of people claiming was under expectations (28,000 vs 78,000 expected). The claimant count will support GBP, although the headline unemployment rate will hit the headlines. With new lockdown measures & ‘tiers’ now in place in the UK, GBP vulnerabilities are clear. If Governor Bailey keeps mentioning ‘negative rates’ in the UK, but then denying it is a possibility, markets will begin to interpret this as being a near-term tactic, and this will further pressure GBP.
GBP/EUR remains near 1.1050 and GBP/USD above 1.2900 is back to the middle of recent ranges after a 6 week plunge near 1.2500.
EUR/USD is under pressure at its 1.1800 level as Germany, Spain and France impose tighter lockdown measures, and the Johnson and Johnson delayed vaccine news. Last week’s negative inflation data suggests that the ECB will boost its bond purchases in December – expanding its huge bond-buying program (in the face of a lack of evidence that it works) to try and stimulate the EU economy.
AUD: Reacting to Chinese data (trade balance) this morning, pulling back from 6-week highs against the USD, at 0.7150.