News & analysis

GBP

Sterling switched back into “sell the rumour” mode yesterday after a report from Bloomberg claimed that EU leaders had no plans to offer additional concessions ahead of next week’s EU summit, which was previously described as a deadline by Boris Johnson. Johnson has recently softened his position on insisting on a deal by October 15th, and last week saw a veritable hail of anonymous briefings from both sides, attempting to spin the narrative on talks to their advantage. This report also cited anonymous sources, and so should be taken with a grain of salt as individual parties in negotiations may be using media briefings as a means of “spinning” their own agendas. A number of other stories are worth a cursory mention for sterling this morning. Yesterday’s construction purchasing managers’ index showed reported output in the sector spiking, with the index rising to 56.8. Price increases and strong sentiment in the residential sector appear to be driving the optimism. This morning mortgage lender Halifax released their house price index, which rose 1.6% in September, as mortgage applications surged to their highest since 2008. Official house price data will be released by the ONS at 09:30 BST. Elsewhere, Covid-19 infections continued to rise, with 14,542 new cases reported yesterday, with matching increases in hospital admissions and deaths. London’s Mayor Sadiq Khan said the capital was at a “tipping point”, with the caseload rising faster than some parts of the country that are under stricter lockdown measures.

EUR

The euro fell to new daily lows overnight after US President Donald Trump abruptly broke off stimulus talks with House Speaker Nancy Pelosi until after the election. Hours later, he used a tweet to call for partial stimulus, including support for airlines and smaller businesses. This morning, the euro gradually recovered its losses as the greenback weakened across the G10. The release of German industrial production from this morning fell short of expectations, especially after Tuesday’s factory orders from Germany showed a significant monthly increase of 4.5%. The industrial production however fell by 0.2% in August compared to the 1.5% expected increase and the prior print of 1.2%. The data miss only provided for a minor pullback in EURUSD however, suggesting that the pair could continue to enjoy some buoyancy. For the remainder of the day, the market disappointment following the fiscal stimulus news from the US is likely to further drive EURUSD price action, while markets also await the FOMC minutes that are released tonight.

USD

After a bounceback yesterday, the dollar trades this morning firmly on the back foot against most of the G10 and EM currencies. The news that further fiscal stimulus measures won’t be enacted prior to the November election ring through markets today, shortly after Fed chair Powell reiterated the need for active fiscal policy in response to this crisis yesterday. The divergence in stimulus plans is likely to remain a focal point for the election with the $2.2trn proposal by the Democrats crossing some red lines in the Republicans’ eyes. However, in the tweet in which Trump called off talks over pre-election stimulus, the president did commit to further stimulus down the line in the case of a victory in November. This shouldn’t come as a shock to anyone but should the election result produce a split system, with each party holding a majority in either chamber, fiscal stimulus may continue to be held up in the bureaucratic quagmire. With fiscal policy now slipping out of the market vista, monetary policy will return to the fore. Tonight, at 19:00 BST, the Federal Reserve will release crucial meeting minutes from their September policy meeting. Given the dovish shift by the FOMC in September towards triple locking lower rates for longer with labour market and inflation targets, and the latest shift to an average inflation targeting framework, the minutes will be read over with a fine-tooth comb for any additional information over timings.

CAD

The loonie followed the broad G10 move yesterday to trade lower against the dollar despite WTI climbing back above $40 per barrel as supply concerns rose due to hurricane Delta. Data out of the Canadian economy showed cause for concerns on two fronts. Firstly, trade balance data for August showed a deterioration in two-way trade as both imports and exports fell by 1.2% and 1% respectively. While much of the decline was driven by aircraft and other transportation equipment for imports and motor vehicle and parts for exports, the contractions were broad-based as 6 of the 11 categories flagged declines. The data meant that total trade contracted from 96% to 94% of February’s levels, suggesting the period of slower and choppier growth is beginning. Secondly, Toronto’s downtown housing market started to show worrying signs. Data from Toronto Regional Real Estate Board showed active listings for downtown condos hit a record high in September and were 215% higher than the year prior. The hollowing out of cities as businesses shift to working from home schemes is starting to show in Toronto’s market. House listings on average in Toronto rose by just 5.3% on average during the same month. These are worrying signs for the economy, however, as the housing market remains Canada’s largest financial frailty. For now, the downwards pressure on house and rent prices is isolated to the inner city and is unlikely to cause too much concern for policymakers, but any contagion into the broader housing market will likely be met with further stimulus. Today, however, the loonie trades on the front foot as it follows the broad G10 move yet again, rebuffing the the price action coming from oil markets, which sit lower today on failed hopes for US stimulus and potentially rising inventories. Today, those US inventory numbers will be in scope for the loonie at 15:30 BST, but just prior at 15:00 BST the Ivey PMI for September will be watched.

 

 

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