Financial Services

The world focuses on Washington

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Good Morning, one event above all else will dominate the headlines this week, the inauguration of the 46th President of the United States, Joseph Robinette Biden Jnr.

With large numbers of the National Guard deployed in possibly the tightest security ever witnessed for the event, we hope that the authority’s precautions deter the feared violent protests.

Last week we got a glimpse of his plans for a substantial stimulus totalling nearly $2tln. How quickly the new President can pass this will be down to how accommodating the defeated Republicans chose to be. Whilst pleasing the markets initially, the proposed package’s size will necessitate an increase in treasury bond issuance to fund the plans. Treasury yields have started to reflect this fact and have been increasing recently. The risk-off sentiment is beginning to grow, and as it does so will the attraction of safe havens such as the dollar.

Politics are also starting to influence the euro’s direction with the continent looking suddenly less stable. Italy’s coalition conflict is now looking likely to end with a confidence vote in Prime Minister Giuseppe Conte, Mark Rutte’s government in The Netherlands has resigned and further North in Denmark an impeachment trial is likely. In Germany, the Christian Democratic Union party has chosen a successor to Angela Merkel, and Armin Laschet will now lead the party to the General Election in September. When combined, these individual factors are starting to spread a little uncertainty about the bloc’s unity.  Vying for headline space will be the continued advance of COVID-19 and the introduction of stricter lockdown measures, particularly in France, Italy and Germany and the slowness of the vaccination programme in Europe.

UK

Sterling was the best performing G10 currency last week, not something that occurs too often. It has opened this morning easier against the dollar at $1.3570, but it is still trading strongly against the euro at €1.1235. For once, the UK looks relatively stable politically, and its vaccination rollout programme’s efficiency is helping sterling find buyers. The pound was also supported by Andrew Bailey, Governor of the Bank of England, all but dismissing the prospect of sub-zero interest rates despite his deputy  Tenreyro arguing that they were possible. In the coming week, we will get to see a snapshot of inflationary pressure, if any, when the Consumer Price Index is released on Wednesday. We will see how the consumer acted over the Christmas period when December’s Retail Sales are issued on Friday. Also, on Friday, Markit will release its preliminary figures for the Purchasing Manager’s Index. BoE Governor Andrew Bailey is giving a speech later today, and his Chief Economist Andy Haldane is speaking tomorrow.

US

Away from the pomp and ceremony of Wednesday’s inauguration more mundane problems will be occupying the financial markets this week. After a week of disappointing data that culminated with December’s Retail Sales dropping by more than expected and containing downward revisions for previous months, sentiment has become more risk-averse. The dollar may find buyers as a safe haven if Iran continues to test the new President’s resolve. Its a Bank Holiday in the US  today celebrating  Martin Luther King’s Birthday. This week’s critical data will again be the weekly jobless claims on Thursday, and we will also be watching out for the release of US housing data during the week.

Euro

Some political instability is creeping into Europe; consequently, the euro has been slipping and is now trading at 1.2075. Also encouraging selling pressure were the minutes from the previous ECB meeting in December, which highlighted concerns about a strong euro and its effect on inflation. The week ahead is a busy one for data and more importantly meetings. We start the week with Germany’s Consumer Price Index tomorrow and the ZEW Economic sentiment surveys. On Wednesday, the European Consumer Price Index is released as is the German Producer Price Index. The week closes out with the Markit Purchasing Managers Indices for the European constituent countries and the zone as an entity. It is also a big week politically starting today with the Eurogroup meeting. The European Central Bank meets on Thursday after which its President Christine Lagarde will give a press conference. There is also plenty to anticipate from the EU Leaders summit meeting on Wednesday when it is expected they will focus on the speeding up the vaccination roll out and implementing the recovery fund.

Scandi

The Swedish Krona’s latest bull run has not escaped the hawkish eyes of Riksbank Governor Ingves. The Swedish Krona, which until recently has been on the long and winding road back to levels last seen in 2018 weakened spectacularly after the Riksbank suddenly announced that it intends to pay back foreign loans on behalf of the Swedish Debt Office over the next two years. They will do this by selling SEK 185bn and buying foreign reserves. The financial press immediately speculated about Central Bank fx intervention, but the Riksbank later denied that. Whilst it is impossible to know for sure what is going on behind that locked door of the Riksbank, the market’s verdict spoke for itself, and it appears as if the Riksbank will have to do some more convincing. This week contains no major data releases, and we will closely monitor the movements from a more technical perspective rather than macro.

The Norwegian Krone had a quiet, rangebound week against most G10 currencies, this week’s focus will be the Deposit Rate announcement from Norges Bank. Governor Olsen is not expected to do something drastic this early on in the year. We will follow the press conference closely on Thursday as he has warned and hinted previously that the market perhaps is not taking the possibility of a rate hike before 2022 into consideration.
Although it is not something the market expects will impact the DKKEUR peg, Denmark has its first impeachment trial in almost three decades which may have wider political implications for the country.

A difficult start to the New Year

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Good Morning, the optimism that surrounded the start of the New Year quickly evaporated last week as the spread of COVID-19 worldwide started to concern the currency markets.

In the UK records of the worst type were broken as hospitalisations and mortalities both hit new records.

With another lockdown now enacted  London’s mayor, Sadiq Khan has declared a “major incident”. Concerns are now growing for the damage that the economy will suffer. With the mass vaccination programme currently underway, there is at least some light at the end of the tunnel, however tighter lockdown restrictions are being considered. Compared to mainland Europe, the UK is some way ahead of getting the population inoculated. This should help give the UK economy a head start compared to Europe when the recovery hopefully starts later this year and is lifting sterling against the euro.

Markets were also optimistic that Donald Trump would concede gracefully and leave the White House in an orderly manner. Instead, the world witnessed the turmoil in Washington, DC, last week. The market now wonders if there are any more twists in the tail to come and is becoming more risk-off. However, as much as Donald Trump dislikes the outcome, Joe Biden will be the next President, and the Democrats will control both houses making legislation easier to pass. After disappointing employment data showed that the US economy had lost another 140,000 in December, the incoming President knows that he faces plenty of economic challenges. He also has the tricky task of uniting a deeply divided nation.

UK

Sterling suffered slightly last week as Boris Johnson instigated the third lockdown on the country. Questions were also raised concerning the efficacy of the developed vaccines against the newer strains of the virus. Of course, countering the doom is the expansion of the vaccination programme, which may enable the UK to swing out of the lockdown cycle faster than its competitors. Brexit has finally dropped off the front pages, and so far, there appears to have been a smooth transition, but the market will remain cautious of sterling to see whether there is a delayed impact. This week we have another quiet week on economic data with the highlight being November’s monthly Gross Domestic Product which is released on Friday alongside Industrial Production data. This afternoon Silvana Tenreyro, from the Bank of England, will deliver a speech titled “Let’s talk about negative interest rates” which may spook the markets and pressure Andrew Bailey to respond.

Euro

Europe is facing the same problems as the rest of the world as COVID-19 case continue to increase, and containment measures grow in response. The euro has been under selling pressure as the vaccine campaign appears to have started slowly epitomised by France vaccinating less than 150,000 compared to around 2,000,000 in the UK. With the more contagious strain of the virus now reaching into the continent, a third wave is becoming a distinct possibility. After a busy start to the year on data, this week is quieter with only Eurozone Industrial Production for November due out on Wednesday. The ECB’s Christine Lagarde is speaking both this afternoon and Wednesday and the minutes from the last ECB meeting are released on Thursday. We will also be watching the German CDU convention choosing Angela Merkel’s replacement as their leader.

US

After the maelstrom of last week, we will be hoping for a quieter time this week as Donald Trump enters the last days of his Presidency. Last week, US interest rates started to rise as the Biden administration is expected to introduce reflationary policies, and a change in risk sentiment has begun to be felt. As yields rise, the dollar becomes more attractive, and over the last week, sterling eased and has opened this morning at $1.3500. A relatively quiet week for data this week mainly focusing on what the US consumer has been doing. December Consumer Price (CPI) figures are out on Wednesday, and Retail Sales will be released on Thursday which is expected to disappoint. Google mobility data suggests people traffic in retail areas has been slow which infers less gift buying over the Christmas period. Several Federal Reserve members are speaking this week including Jerome Powell, Chairman of the Federal Reserve, on Thursday.

Scandi

The Swedish krona was rangebound last week and the shorter working week meant that liquidity was very thin. This week is the first official week back at work, and new COVID-19 related restrictions have come into force, including face masks during rush hour on public transport and fines for anyone hosting a private event of more than eight people. The week kicks off with Swedish Housing Figures and the Budget Balance. Later in the week on Thursday we will get the Unemployment Rate, and on Friday the CPI figures are released. Inflation is expected to come in at 0.6% on a month-on-month basis.

The Norwegian krone has started the year strongly, which may be more technical than macro, driven. This is because Norway’s two major industries (oil and fishing) are still suffering from lockdowns and the absence of leisure and business travel. This week we start with the CPI figure out today and GDP figure tomorrow. The latter is expected to have contracted 1.6% on a month-on-month basis. The week finishes off with the trade balance being reported.

Will we have an early present of a Brexit deal?

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Good Afternoon, the end of last week saw the Thanksgiving holiday in the US, which brought about a quiet end of the week in FX markets. To us, this also marks the start of the festive season, with the new (and some might say unwelcome) tradition of Black Friday and Cyber Monday, as a precursor to entering the period of advent tomorrow.

The main focus on the markets though, won’t be opening the first window of our advent calendars, but the progress of Brexit talks, with time now getting very tight for a deal. There were some hopeful headlines over the weekend, but the ebb and flow of rumours coming from both sides over the coming days will be the main driver of currency markets, and the pound in particular. We appear to be making progress over fisheries, but both sides have been relatively tight-lipped as face to face talks have commenced this morning.
 
Aside from the short-term Brexit focus, any COVID-19 related news and further vaccine updates will have an impact on global risk appetite, and we have a fairly busy week on the data docket. The Reserve bank of Australia (RBA) latest rate announcement is released overnight tonight, a host of central bankers are speaking throughout the week and a raft of US data towards the back end of the week, culminating in the latest non-farm payroll numbers being released on Friday.

GBP

Last week’s updated forecasts from the Office for Budget Responsibility (OBR) offered the most detailed estimate yet of the impact on public finances and the economy amidst the COVID-19 pandemic. An expected Gross Domestic Product (GDP) showed a decline of 11.3% and a public sector deficit of £394bln for 2020/21. Despite this deficit, Chancellor Sunak raised spending for the next year as he underlined the immediate priority to combat the pandemic and preserve jobs. Sterling did end the week lower, penalised for the continued ongoing differences in Brexit negotiations. With face-to-face talks set to resume as we enter what has been described as a crucial week, markets remain cautiously optimistic about the likelihood of a deal.

EUR
The euro closed its strongest week for a while as EUR/USD is in touching distance of the psychologically significant $1.20 level. The single currency shrugged off sub-par data and has been edging higher as news of COVID-19 vaccines and central bank stimulus raises hopes of an economic recovery next year. A busy week ahead for data statistics as inflation, employment and retail sales for Germany and Europe as a whole are due for release. ECB President Lagarde and several of her colleagues are also scheduled to speak this week.

USD
US economic data has been a mixed bag recently, however, on balance it suggests that activity has slowed overall. US November PMI data unexpectedly rose but there was a big increase in weekly jobless claims. Thanksgiving holidays cut the week short for US participants but the dollar is in for another busy week as Fed Chair Powell and Treasury Secretary Mnuchin will testify to Congress about the effectiveness of policies designed to offset the economic impact of the virus. With the two not exactly seeing eye-to-eye recently, this could be an interesting one. Labour market data and US non-farm payrolls are the other highlights.

Scandi 

SEK initially had a strong week touching new highs for 2020 against the EUR but the normally mundane and calm Riksbank Governor took everyone by surprise on Thursday. As expected, the repo rate was left unchanged, but it was announced that the Riksbank was going to expand its asset purchase programme by SEK200bn to a total of SEK700bn. The market had expected an expansion of SEK100bn only. SEK weakened immediately and was hit with further comments about the possibility of a return to negative interest rates and that rates would at least be at today’s level for years to come. It is worth noting that two Riksbank voting council members did not vote in favour of this expansion. Growth estimates for 2021 were reduced too. We are now officially entering into what is historically and normally SEK’s strongest month and it will be interesting to see what kind of appreciation will be acceptable for the Riksbank. This week is very calm and the only set of data we will pay attention to is the Swedbank PMI Manufacturing survey on Tuesday. It is expected to come in at 58.0.
NOK ended the month of November on a high note gaining ground against all G10 currencies and becoming the top performer. This week is very calm for NOK too with Tuesday being the only major date when the DNB PMI Manufacturing survey is released. The market is expecting a reading of 53.0, i.e. an expansion.

Time for a Brexit breakthrough?

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Good Morning, last week the markets switched their attention away from the recent US election and started reacting to COVID-19 derived headlines. Risk sentiment see-sawed during the week and will continue to be the primary driver of currency moves.

Initially, the stock markets went to the moon on the news that Pfizer had developed a COVID-19 vaccine that was at least 90% effective. As stock markets rallied risk sentiment improved and beta currencies such as the pound rallied. As the week progressed the market mood soured as the realisation hit that there is a likelihood of more economic setbacks before the vaccine can make a difference. Europe now has widespread lockdowns as the second wave of the virus rampages through the continent but more troubling for the markets is its spread in the United States. Whilst Donald Trump has been in charge, the economy has been kept running but the market’s worry is whether Joe Biden, if he becomes President, will implement widespread lockdowns.

In the coming week, we expect currencies to remain mainly event-driven with the same three stories, as in recent times, dominating. Firstly, the uncertain political backdrop in the US is still rumbling away in the background, with allegations of fraud, legal cases and recounts continuing. Secondly, with American COVID-19 cases increasing exponentially, the fear of post-Thanksgiving lockdowns in the US is starting to permeate through into the markets. Finally, after another week of seemingly little progress, there is a sense that we may, at last, be approaching the end game in the Brexit trade deal negotiations as they increasingly becoming time-critical. With plenty of unpredictable themes set to drive the markets this week, we will be here to help, giving you insights on how this could impact your currency requirements and how we can mitigate these risks.

UK

Sterling traded in quite a narrow range last week, finishing at $1.3150 against the dollar, after touching a high of $1.3250 and at just above €1.1100 against the euro. As we enter the second week of lockdown in the UK the infection numbers seem to be dropping and attention is starting to switch to Number 10, where Boris Johnson has been forced to self-isolate. After two hardline Brexiters, Dominic Cummings and Lee Cain left last week there is an increased sense that the land is being prepared for a relatively soft Brexit deal. Time is really running out now to get any free trade agreement ratified by both parliaments and the feeling is that a deal needs to be agreed in the next couple of weeks, if not sooner. As always with Brexit, it is best not to rule out a surprise and we will, of course, be watching the headlines closely. There is not a lot of data being released in the coming week apart from October’s Consumer Price Index on Wednesday and October’s Retail sales on Friday. The Bank of England is also busy with Andrew Bailey, Dave Ramsden and Andy Haldane all set to speak.

Euro

The market shrugged off some dire economic figures from the Eurozone, allowing the euro to have a relatively good week, touching at one point a two-month high of €1.1920. Buyers have been encouraged as lockdowns seem to be leading to a flattening of coronavirus curve. If this flattening continues the opportunities for opening of economies in the run-up to Christmas will increase and Europe’s economy, and the euro, will benefit whilst the US flounders. As with sterling, the euro will benefit from any Brexit breakthrough but, as we have seen recently, once it approaches $1.2000 the ECB will verbally intervene to try and cap any advance. The EU virtual summit on Thursday could be the platform for an announcement regarding Brexit. Plenty of speakers from the ECB this week, with Christine Lagarde scheduled to speak every day apart from Wednesday! There is not a lot on the Eurozone data docket this week with just October’s Consumer Price Index on Wednesday and Consumer Confidence on Friday.

US

Donald Trump has remained relatively quiet in the last week, however, he has still yet to concede defeat. Whilst the media and most of the market are assuming that Joe Biden will be the next President, it is still not finalised, and States have until December 8th to resolve disputes. Away from politics, the dollar will again be driven by switches in risk sentiment most likely caused by COVID-19 derived headlines. New York and Chicago are taking steps to try and halt the spread of the virus, whilst elsewhere it is verging on being out of control with patients in the Midwest being unable to find hospital beds. With Donald Trump unlikely to impose restrictions it will be down to local governors to decide but many consumers will have made their mind up and will stay at home. There are plenty of speakers from the Fed this week, who are likely to reiterate the same mantra of “whatever it takes” whilst hinting at further intervention if necessary.  A relatively quiet week on data with just October’s Retail Sales, released on Monday, and the Thursday’s employment numbers catching the eye.

Scandi

The Swedish krona had a roller-coaster week, initially strengthening against all major currencies and then weakening rather spectacularly on Friday. What started the sell-off on Friday was a report from the Riksbank saying that annual growth from the Nordic countries’ largest economy was lower than initially publicised which was followed later in the day by the government of Sweden imposing new COVID-19 related restrictions. Restaurants, bars, and nightclubs must now shut at 22:00 until the end of March, thus affecting the crucial festive period. This week, we will watch for the unemployment rate out on Thursday
The Norwegian krone also had a volatile week, after initially strengthening but then lost ground towards the end of the week and practically finished unchanged. On Tuesday, we will get the consumer confidence indicator which will tell us whether we can expect festive cheer from the retail industry post-Christmas, or not. We will also get the GDP figure on Tuesday.

Over in Denmark, the decision to kill 17m minks in the country was taken by the government after a mutation of the virus was found in them. Denmark was until last week Europe’s largest fur producer and the industry turned over almost $1bln 2018-2019. Experts predict that 1,000 farms will now close permanently affecting 6,000 jobs. We will monitor any statements from the Danmarks Nationalbank and the finance minister Nicolai Wammen closely this week.

ROW

The Australian dollar had a relatively quiet week last week as the country seems to have got the second wave of Covid under control we will be watching closely for signs of a further deterioration of their relationship with China. This week the Royal Bank of Australia’s Governor Philip Lowe is speaking, and we will be keeping an eye out for the unemployment figures on Thursday. The yen traded at just above 103 on the vaccine news last week but as the week wore on its own COVID-19 spike started to concern markets and the currency eased. The Canadian dollar was driven by movements in oil and as West Texas Intermediate (WTI) turned south the currency followed. With no economic data to drive the loonie this week, it will again most likely track the oil market.