News & analysis


Sterling opened the week easing off from its three-month highs against the dollar after trade talks between the EU and UK last week failed to deliver meaningful progress. If no progress in negotiations is made before the end of the month and no extension has been requested, this would mean a hard Brexit for the UK. The deadlock talks shift the pressure to Prime Minister BorisJohnson and European Commission President Ursula von der Leyen who are expected to meet later this month to inject some political momentum and move the process along, although no date has yet been set. The UK hopes the two nations will step on it and continue negotiations more intensively during July and has repeatedly ruled out an extension. A senior negotiating official from the UK reported to the Daily Mail that “We are not up for a long negotiation over the next months well into the autumn where nobody knows what is going to happen. October is too late for us to conclude this”. The narrative of dead-end trade talks are likely to weigh on the pound, but continued dollar weakness on the back of hopes for economic recovery following the reopening of economies has somewhat winded this down. From today onwards, the new quarantine rules will require anyone coming into the UK to self-isolate for 14 days or risk a £1000 fine. The UK’s economic calendar will be quiet for most of the week, with Friday containing the major data releases including industrial and manufacturing output.


The euro ended on an upbeat note last week after the ECB announced a larger-than-expected expansion of its stimulus programme and the US jobs report showed an unexpected surge. This morning, the currency is trading just below its three-month high against the dollar after German industrial output plunged by 25.3% year-on-year compared to the forecasted median of -24.8% and a prior reading of -11.6%. Eurozone Sentix Investor Confidence rose to -24.8% from May’s -41.8 but remained below the expected reading of -22.0. The eurozone continues to ease lockdowns with Belgium opening restaurants and bars today while Spain also loosens restrictions in some cities. With today’s data calendar being virtually blank, all eyes are turned to European Central Bank President Christine Lagarde who will speak at the European Parliament Hearing at 14:45 BST today. Markets keep their eyes open for any insights into last week’s larger-than-expected boost in the central bank’s pandemic QE programme.


The dollar continued its slide against most of the G10 currencies this morning after weakening across the board for a full week. Friday’s unexpected rise in Non-Farm Payrolls added to signs of the first steps of economic recovery from the pandemic, making it harder for the safe havens to resist further depreciation. The May jobs report showed a +2.5 mn change in Non-Farm Payrolls vs an expected -7.5 mn change, while the unemployment rate printed at 13.3% compared to the forecasted median of 19.0%. Today marks the first of four reopening phases in New York City as construction, manufacturing, wholesale and kerbside retail businesses can resume activity, allowing up to 400,000 people to return to work. Thousands are expected to gather for George Floyd’s funeral which will take place in Houston Texas today. While the economic calendar is far from empty for the US this week, all eyes are turned to the Federal Reserve meeting that takes place on Tuesday and Wednesday. Markets await comments on the Main Street Lending Facility as Powell mentioned a week ago that the programme was “days away” of being up-and-running. Any updates on the economic outlook and hints at softer stimulus will also be watched.


This morning saw another bout of loonie strength as oil prices rose yet again after OPEC+ producers extended the output cuts through July over the weekend in order to boost prices. The cartel also secured commitments from Iraq to make good its missed targets from the past months and improve compliance. The extension in production cuts led to new highs in crude oil prices and had WTI surge to over $40/b this morning while Brent reached $43/b. Today’s economic calendar includes data on the new building starts in May which are scheduled for 13:15 BST and are expected to print at 160K compared to the prior 171K.



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