News & analysis


Sterling began to lose steam last night, after several days of consistent gains. A number of news headlines and data releases are of note for sterling this morning, with third quarter gross domestic product rising 15.5% after its almost 20% contraction in the second quarter. Monthly data from September showed GDP was still 8.6% below its January 2020 peak, highlighting the deep impact the Q2 lockdowns had on the economy – and hinting at further damage from the current restrictions. Other data suggest that October GDP is not likely to show much improvement, with the composite PMI declining to 52.1 on the month. The Royal Institute of Chartered Surveyors released its latest residential market survey results, which showed a balance of +68 of surveyors reporting house price increases, an acceleration from September’s reading of 62 and a 21 year high. Activity is likely to remain strong in the near term, with the extension of Government wage support schemes, but with unemployment likely to rise the medium-term outlook is less certain. On the political front Downing Street communications director Lee Cain quit following what is reported to be an internal power struggle with little implication for wider policy. Bank of England Governor Andrew Bailey will participate in a panel discussion about monetary policy at 17:45 GMT today.


The euro continued to trade lower against the US dollar yesterday following rising Covid cases in the eurozone and US, while comments from European Central bank President Christine Lagarde at the ECB’s annual forum likely also weighed on the pair. Lagarde stated that policymakers will focus on emergency bond purchases and long-term loans for their next wave of stimulus at the December meeting, confirming what markets were already expecting but also effectively ruling out interest rate cuts as a way to further support the economies. The Pandemic Emergency Purchase Programme (PEPP) and Targeted Longer-Term Refinancing Operations (TLTROs) have proven their effectiveness, according to Lagarde, and will therefore likely remain the main tools for adjusting monetary policy. For today’s ECB forum, speeches by Lagarde but also Fed Chair Jerome Powell and BoE Governor Andrew Bailey or on the schedule. Additionally, the euro may take cues from the September industrial production figures at 10:00 GMT. The year on year figure is set to have increased to -5.8% up from last year’s 7.2%, while the month-on-month figure is expected to remain roughly unchanged according to the median of forecasts submitted to Bloomberg.


It was another day of broad dollar strength against the G10 yesterday with only the New Zealand dollar making inroads against the greenback. In the US, the election still hasn’t come to a conclusion as incumbent Donald Trump remains reluctant to concede to Vice President Bident. Court cases are still ongoing but Trump’s position suffered a blow yesterday when the Republican Attorney General states that Arizona is looking “highly unlikely” after a Maricopa County judge rejected a Trump team request to seal claims of poll workers incorrectly rejecting votes. The judge said the public “has a right to know how flimsy” the evidence is. However, a hand recount has been ordered in the state of Georgia and is set to be completed by November 20th, but markets aren’t too concerned with these recounts as of yet. Second waves and vaccine availability is currently dominating the market’s focus, with Japan weighing more measures and New York ordering bars and restaurants with an alcohol license to close at 10pm. Hospitalisation rates across the US have risen to a record high, while California’s positive test rate climbs to a two-month high. After Pfizer’s positive vaccine trial results on Monday, Moderna has now accumulated enough positive testing patients to go ahead with preliminary analysis of its shot’s effectiveness. With this in mind, the dollar remains well supported in today’s session but has lost ground to the traditional haven currencies CHF and JPY, while the euro is also up against the greenback. Today, CPI data for October is due at 13:30 GMT, while Fed Chair Powell is set to speak at the ECB’s forum at 16:45 GMT.


A bounceback in the dollar yesterday left the loonie’s recent trend of marginal weakness intact as USDCAD rose 0.23% in the session. After the initial news that Ontario was going to experience a scaling back of lockdown measures, a recent spike in cases has dashed optimism once again. Yesterday, the province reported 1,426 new cases, bringing the seven-day moving average up to 1,216 from just 971 a week ago. This has led to indoor dining remaining a restricted activity until at least mid-December in Toronto, with other indoor activities remaining out of scope at present. The Toronto and the Peel region are now both one tier away from re-entering a full-blown lockdown, adding another layer of risk to the Canadian economic recovery.  The rising case count isn’t just a problem for Ontario, the largest province where nearly 40% of the population lives. The prairie province of Manitoba will move to “critical” stage restrictions today, with Alberta considering a two-week snap lockdown, while British Columbia has also been forced to tighten measures. This may in part explain why the loonie is trading with a bearish bias this week as the initial success of lockdown measures in Ontario and Quebec start to show little signs of progress. The latest measures suggest the Bank of Canada’s outlook for the recovery in Q4 is likely to be correct. They expect annualized QoQ growth of 1%, which is practically a stagnation in the economic rebound. Today, Senior Deputy Governor Carolyn Wilkins gives a speech at 18:30 GMT on exploring life post-Covid.



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