No further Brexit talks planned
19th October: Highlights
- Sterling is likely to face Brexit pressure
- Biden leads but Trump slowly making inroads
- ECB Members’ views and Consumer Confidence to drive the Euro
Barnier told don’t bother coming to London
There are two areas over which there is still a significant disagreement between the two sides demands, fishing rights and state aid.
Following the break-up of talks, the EU Summit which was supposed to ratify the talks ended in confusion (see below).
Boris Johnson commented that the talks are at an end and there is no point in EU Chief Negotiator Michel Barnier visiting London this week without a significant change of heart on the part of the EU. It appears that as things stand, the UK will be dealing with Brussels on WTO terms from January.
The Government is also embroiled in a disagreement over Covid-19 with the Mayor of Manchester over moving the city to Tier Three of the Government’s new restrictions.
Mayor Andy Burnham, a former contender to be Leader of the Labour Party, is standing firm over the level of support that the Government is willing to provide to workers who are furloughed as hospitality outlets have to close.
The Government is accusing Burnham of playing politics. It can impose the restrictions without agreement from local government but is loath to do so.
As the standoff continues, the rate of infections in the area is growing although Burnham has questioned Government statistics especially in the area of ICU admissions.
The unemployment rate in the UK continues to rise, reaching 4.5% in September. This is likely to rise further as more businesses that are temporarily closed find that they are unable to profitably reopen and the original Government Support expires at the end of the month.
The pound was volatile in a relatively narrow range. It traded between 1.2863 and 1.3082 versus the dollar closing at 1.2917.
This week, both sides in the Brexit negotiations will continue to blame each other and set out conditions under which talks can continue. This could add volatility to the market as hopes are raised and dashed.
Retail sales data will be released on Friday along with PMIs for manufacturing and services.
Analysts are fearing the worst and speeches by both Andrew Bailey and BoE Chief Economist Andrew Haldane are likely to provide contrasting outlooks.
Cars and houses selling fast. Powell to keep powder dry
The ability of banks to lend to businesses of all sizes is not limited by liquidity and sufficient guarantees remain in place for funding to be readily available.
The Fed is doing all it can to provide stimulus to the economy but until there is a stimulus package agreed by Congress, they will not consider it necessary to intervene.
With the election looming, employment and activity are the two most significant drivers for the economy and the currency.
Industrial production and capacity utilization fell marginally in September while confidence rose, also by a small amount.
The major provider of support for the economy was the retail sales data which recovered from a fall in August to rise by 1.4% in September. The increase was far stronger than had been expected by analysts.
This week, there will again be a raft of speeches by FOMC members, while data releases will be dominated by jobless claims on Thursday and preliminary activity data for manufacturing and services output.
Employment data has been mixed recently with the longer-term measure falling and the weekly new claims rising then both reversing.
Non farm data will be released after the election so for now, the effect is an unknown, but there may be plenty of those by November 6th.
The latest polls show Biden still ahead but following several large rallies, Trump appears to be closing. Having said that, the entire result hinges on between six and ten swing States where the result is never straightforward.
In those States, Biden’s lead looks enough, but the same was true of Hillary Clinton four years ago, and she was tripped up at the last minute.
Last week, the dollar index traded back up to close to its opening level from the week before. It reached a high of 93.91, finishing at 93.70.
Record levels of infections to kill Q4 recovery
France now has the highest number of cases in Europe since the Pandemic started last March and President Macron ordered a 10pm until 6am curfew to slow the rise. The scientific community see that as a fairly pointless yet symbolic gesture
Germany which had a relatively low infection and fatality rate is now, nonetheless, seeing cases beginning to rise.
In March, the first move was to close borders and that could easily happen again in the coming days or weeks. There is no central or concerted effort in place for the entire region .
The EU Summit, which was due to discuss cooperation ended in something approaching chaos. First, EU Commission President Ursula von der Leyen left early due to a positive case in her staff and then the Finnish Prime Minister left citing fears over precautions being taken.
Banks, already facing a huge hole in their balance sheets from the financial crisis, are concerned over the debts that are again building that may not be repaid. Another lockdown would cause significant damage to the Q4 recovery while the scale of any recovery in Q3 is still unknown and a cause for concern.
ECB Governing Council members from the frugal five group of nations that are cynical about the use of EU funds to finance nations with debts already getting out of control are trying to ensure that the ECB does not add further liquidity yet, citing the fact that it is as yet unknown how serious the second phase will be.
Last week, the euro suffered as the dollar gained in an almost opposite manner to the previous week. The Eurozone remains in a state of deflation with prices having fallen by 0.3% in the year to September, unchanged from August.
The single currency fell to a low of 1.1688. Although it recovered to close at 1.1719, it is likely to remain under pressure this week as the full effect of a no deal Brexit becomes clear across the whole mainland.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”