USD

Vaccinations and viruses set to dominate

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Good Morning, after the fears of violent disruption to President Biden’s inauguration proved to be unfounded, the market has returned its attention to COVID-19 and the proposed stimulus package.

Sterling has so far been a beneficiary from the success of the vaccination programme’s roll-out, which is now seeing nearly 500,00 inoculated daily.

However, after Boris Johnson warned of the new strain’s virulence, the pound may start to ease back. Currency traders will be watching out for more information on this as they will the vaccination rate. The perceived wisdom is that countries that vaccinate the quickest will see their economies recover fastest. In this respect, the UK is striding ahead of the US and Europe, having vaccinated over 10% of the population.

In the week ahead we will be watching to see if Joe Biden can circumvent any filibustering attempts by the Republican party in the Senate to stall his $1.9trn stimulus package. For the man on the street, the aid is desperately needed, and if Joe Biden fails to get enough bipartisan support, the recent rise in the dollar could stall. The disappointing December Retail Sales released last Friday raised questions about the UK economy’s ability to bounce back. This week, we will get further clues about it when the latest unemployment figures are released. We will also be watching political developments in Europe, particularly Italy. The other events of note will be the “virtual Davos” meeting where we will hear most of the world’s leaders opening on COVID-19 and midweek the monthly Federal Reserve meeting, and press conference will take place.

UK

Sterling has opened strongly this morning, above $1.3700 following on from last week’s solid performance. Vaccinations are continuing apace, and as yet few problems seem to be surfacing because of Brexit. Late last Friday afternoon, the prime minister did sound a warning shot about the dangers of new variants of the virus, which may lead to a longer lockdown than anticipated. The market is now putting more emphasis on the rate of vaccinations than backwards-looking data, which is just as well after Friday’s disappointing Purchasing Managers Index (PMI) and Retail sales figures indicated that a double-dip recession is now likely. Countering this was the good news of a reduced risk of negative interest rates and a surprising uptick in inflation. In the coming week, we will be watching for the Unemployment figures tomorrow which are expected to have climbed again to above 5% despite the furlough scheme’s extension.

Euro

The euro has seemingly been defying gravity recently and has opened at $1.2150 against the dollar; however against sterling it is more restrained at €1.1250. Political problems will continue to concern investors in the single currency, with Italy’s future leadership still hanging in the balance. Inadvertently, the European Central Bank gave the single currency a nudge up with a technical adjustment to its Pandemic Emergency Purchase Programme (PEPP), which was taken as a hawkish move by market observers. There are plenty of speakers to occupy the market this week with the ECB’s Christine Lagarde starting the week on Monday and its chief economist Phillip Lane speaking on Wednesday. Emmanuel Macron and Angela Merkel will also get their opportunities to pass comment at the virtual Davos meeting. A full data docket awaits us as well, with Germany’s IFO Business Climate report first out this morning. Then we wait until Thursday for the next meaningful figures: the Eurozone Industrial and Consumer confidence readings as well as a snapshot of Germany’s inflation data. The week closes out with German GDP for the last quarter and its most recent unemployment data.

US

The celebratory parties are well and truly over for Joe Biden, and it’s down to work this week in his efforts to unite the country and control the second wave of COVID-19. Despite the Democrats’ best efforts, the Stimulus Relief bill is stalling and as it does the dollar is stuttering. The markets will be watching to see if instead of one sizeable all-encompassing bill, he decides to get relief packages passed in piecemeal stages. As elsewhere, the vaccination rate will be studied, as will the take-up level, as economists try and read the economic recovery pace. We also have a busy data docket to look forward to starting with Consumer Confidence tomorrow. Durable Goods orders follow this on Wednesday, and the Federal Reserve holds its first meeting of the Biden era on Wednesday followed by Jerome Powell’s press conference. It is expected he will increase pressure for more stimulus and reassure the markets of the Fed’s willingness to act. Thursday sees preliminary 4th quarter GDP and Jobless claims, and we close out the week with Personal Income and Consumption data.

Scandi

The Swedish krona was rangebound last week in what was a tranquil week despite comments from Riksbank official Jansson saying that interest rates can drop down to negative in the future. The muted response from the market is being viewed as positive, and the recent bull run may continue. The border between Norway and Sweden was shut on Sunday by Swedish authorities as the increasing number of mutated viruses started escalating in bordering Norwegian towns. This week we will keep a close eye the inflation figure out on Tuesday and the trade balance on Wednesday. The official unemployment figure for December is out on Thursday together with the Christmas retail sales. Swedish retail consumption is expected to have decreased by 1% compared to a year ago.
The Norges Bank kept its interest rate unchanged but once again cautioned the market that it may be positioned too short. Speculation in the financial press is now rife that Norway will be the first G10 currency country to raise interest rates. The mutated virus is now spreading in Norway and Oslo has gone into a full lockdown, again. This week we pay extra attention to the unemployment rate, which is out on Friday. It is expected to have increased to 4.3% from 3.8%.

 

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.

Glory days for Joe Biden

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Good Morning, as was widely predicted, the US election dominated the markets for the whole of last week, and the continued fallout from it is expected to carry on driving sentiment for some time to come.

Currencies remain volatile and until the shape of the Biden Presidency becomes clear, and the seriousness of Trump’s legal challenge emerges, we are in for a further period of instability.

The dollar eased quite sharply against sterling, the euro, the yen and in particular the high beta krone, which saw an appreciation of nearly 4%, as risk appetite returned. Even if Donald Trump continues to contest the election, markets seem confident that Joe Biden will prevail and they have high hopes for the US to slowly return to the status quo of a less protectionist country which is, of course, a positive for global trade.

Looking ahead, we are going to carry on being overshadowed by the same stories as in the recent past, in what seems like another Groundhog week with the Presidency, COVID-19, and Brexit being the drivers. The Biden blue wave, that many were predicting, did not quite materialise, and sadly there is a deadly second wave of COVID-19 sweeping through the UK, Europe, and the US. With an increasing number of countries entering lockdown, economies will carry on suffering not least the UK. The last worry for the markets is Brexit, where most investors are now more hopeful of a last-minute deal being the outcome. The consensus view is that with the Brexit negotiations now entering what surely must be the end game, the hit that our joint economies are currently taking will intensify pressure on the negotiators to reach a compromise.

UK

Sterling gained ground as the dollar weakened last week, ending the week nearly 2 and a half cents better, at $1.3150. This move was almost entirely dollar-driven as investors turned a blind eye to the UK’s domestic challenges. Against the euro, sterling also strengthened slightly to sit around €1.1100, where it has opened this morning. The ongoing Brexit talks are now nearing a conclusion and continue this week in London with a semblance of a deal being hoped for in the near future. With both sides facing ongoing COVID-19 induced recessions, an eventual deal is now broadly expected as the damage both politically and economically of a no-deal is too dangerous to contemplate. Data wise, this week we have the latest employment data on Tuesday, but it is unlikely that too much will be read into these numbers as the furlough scheme, which distorts the numbers, has been extended. Later in the week, on Thursday, the most recent Industrial and Manufacturing Production numbers are released along with preliminary third-quarter Gross Domestic Product (GDP). Bank of England Governor Andrew Bailey is also speaking today and Thursday, again we will be listening out for any hints on the likelihood of negative interest rates.

Euro

The euro, as did most currencies, appreciated sharply against the dollar last week as investors warmed to the idea of a less protectionist and confrontational post-Trump world and have been trading up near the €1.1900 level. With the ongoing second wave shutting many eurozone economies, the rise is likely to be relatively short-lived and probably capped around the €1.2000 level, which has recently been the trigger level for the ECB to start to talk it down.  On the data front, the week ahead sees the release of the November Eurozone Sentix survey and the German ZEW economic sentiment survey on Tuesday, then Eurozone GDP on Friday. Towards the end of the week, the ECB is holding an economic forum where all the major central bankers are speaking, including Christine Lagarde (ECB), Andrew Bailey (BoE) and Jerome Powell (Fed).

US

President-elect Joe Biden gave his victory speech in Wilmington on Saturday and now all eyes will be on President Trump’s, who spent the weekend seemingly playing golf. Whatever the outcome, the country remains deeply divided as almost certainly does the Senate which will hamper Biden’s ability to govern. Looking beyond politics, last Friday’s US jobs report almost got lost amongst all the focus on the election, but the October figures were strong with 680,000 jobs created, although the overall number is still 10 million less than February. With COVID-19 continuing unabated in the US, with cases running at over 120,000 a day, there is a growing risk of local and state lockdowns returning which will cause another rise in unemployment. As on this side of the Atlantic, there is still a reluctance for businesses and consumers to return to normal and this knock-on effect in confidence will lead to worsening employment numbers. America has a public holiday for Veterans Day on Wednesday and there is very little data out this week, apart from October’s Consumer Price Index (CPI) on Thursday which is announced at the same time as the weekly jobs report.

Scandi

The return of risk appetite did assist beta currencies, as expected, in their bull run towards the end of last week. EURSEK is now back trading at levels last seen in mid-august and a so-called ‘Santa Claus’ rally may even strengthen the krona further. As mentioned in last week’s update, December is historically a krona positive month. This week we are watching out for the Consumer Price Index (CPI) out on Thursday. It is not expected to have changed significantly and with this figure being the only important data release this week, it is more likely that the general atmosphere on the markets will impact the krona’s movements.
The Krone, on the other hand, suffered at the beginning of last week but managed to regain ground towards the end of it. This week we are watching the CPI figure out on Tuesday which is neither expected to have changed on a month-by-month nor on a year-by-year basis. The most interesting set of data to be released from Norway this week is the GDP figure which is expected to finally show some growth on a quarter-by-quarter basis, growing from -6.3% to 5.2%.
South of the border, a mutated version of COVID-19 has been discovered on a mink farm in Denmark. Although it is too early to say whether this developing story, it may cause Danmarks Nationalbank to take action, we will keep a close eye on those developments since it may impact the wider Nordic region with tighter restrictions or complete closures.

ROW

As with all G10 currencies, the yen benefited from the return of risk appetite last week and is now trading comfortably under 104 against the dollar, however, the trade-weighted yen is still some 4% off its March highs against its closest neighbours. As expected, the hypersensitive aussie gained as risk sentiment improved and with no data or speakers scheduled it will remain driven by external factors as will the kiwi. The Canadian dollar rose on the back of the election as well as better than expected unemployment and again, like all the G10, will remain driven by the fallout from the US Presidential election.

Nervous times with Covid-19

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Good Afternoon, last week the markets became increasingly nervous as COVID-19 infections continued to increase exponentially in the UK, the US and across Europe threatening the already fragile recoveries.

As nerves increased risk sentiment decreased, the dollar benefited, and Sterling gave back most of its Brexit bonus bounce to end the week just above $1.2900.  However, it fared better against the euro and is trading at €1.1075 this morning. With new lockdowns announced on both sides of the Channel, the pressure is increasing on the Brexit negotiating teams and over the weekend there were tentative signs that an agreement on fishing was within reach.

In the week ahead, we are expecting the influence of the Brexit negotiations on the currency markets to slip as all eyes focus on tomorrow’s Presidential election in the US. After months of campaigning the outcome is still far from clear although the pollsters are clearly favouring a strong victory for Joe Biden. Whether Donald Trump will accept losing and resist contesting the result is far from certain and the subsequent ructions would unnerve the markets. With the three swing states of Michigan, Pennsylvania and Wisconsin not even starting to count postal votes till tomorrow and there is a strong possibility that the election result will not be known for some days after polling closes and if contested not for weeks or months. Away from the election, there is quite a week ahead with plenty of central bank activity for the markets to watch out for and what is potentially a tumultuous week will come to a close with the all-important jobs data from the US on Friday. With the likelihood of a very volatile week ahead, we will be working diligently to ensure all your currency needs are looked after.

UK

With last Saturday’s not unexpected announcement of another lockdown in England, the first response to it from the Bank of England will come this Thursday when they have their scheduled meeting. It is probably too soon after the lockdown announcement for them to have prepared a full economic forecast, but it is thought likely that they will increase their asset purchases by another £100bln and the press conference should contain more insights than normal. The markets will also be watching for any further hints on the introduction of negative interest rates in the not too distant future. With lockdown unlikely to end completely after its initial four weeks, sterling will remain vulnerable, however, the recent eerie silence from the Brexit talks and with mounting pressure on both sides, there remains the possibility that good progress is being made. There is not a huge amount on the data docket this week apart from the latest information on the Purchasing Manager’s Indices on Wednesday.

Euro

Not for the first time, the euro will be driven by the same set of factors as sterling. With COVID-19 induced lockdowns being reintroduced across much of Europe the advances reported in their economies are already outdated. Last week Christine Lagarde made clear that the ECB will offer more stimulus in December and the only question is how much it will be and what it will look like.  We will be looking for clues on their plans on Thursday when several speeches from the ECB members are scheduled. On the data front, in common with the rest of the world, the latest PMI’s are released on Wednesday and Eurozone Retail sales are out on Thursday but with the reintroduction of lockdowns, these figures are sadly already outdated.

US

There are at least four possible outcomes to tomorrow’s election despite both candidates spending hundreds of millions of dollars on campaigning. The most likely outcome, according to the polls, is a blue wave with Joe Biden winning convincingly, retaining control of the House of Representatives, and gaining control of the Senate. This result would be risk positive and the dollar would drift lower. The second scenario is one where Joe Biden wins but fails to win the Senate and his policies are consequently watered down and as in the first scenario, the dollar would again drift lower. The third scenario is that, against all odds, Donald Trump wins again and with his predilection for geopolitical confrontation risk sentiment becomes increasingly negative forcing the dollar to rise as safe havens are sought. Finally, the worst-case scenario of a contested result which would lead to a sharp drop in risk sentiment and an appreciation of the dollar. As if the election wasn’t enough to occupy the market, we will also be watching for the Federal Reserve is meeting on Thursday and on Friday the, normally, all-important Non-Farm payroll jobs report is released.

Scandi

The krona ended the month on a positive note and up against all G10 currencies apart from sterling and the yen. We are now entering a period which historically speaking is positive for the krona with tax planning influencing its direction. Readers will remember that krona is a Beta currency which performs well when there is a ‘risk-on’ atmosphere. Thus, the krona may be particularly vulnerable on and around the days of the American election depending on the actual result and how the market reacts. This week kicks off with the Swedbank Manufacturing PMI survey. On Thursday we will watch the Industrial Orders and Service Production data from September followed by the Budget Balance on Friday. 
Over in Norway, Thursday this week will be particularly important with a Rate Decision from Norges Bank. The market is not anticipating any changes in the monetary policy from Governor Olsen, however, rumours in the financial press keep on hinting that an increase in interest rates and an end to the stimulus package may come sooner than the market is anticipating. On Friday, the Industrial Production figures for September are released.

Decision day for UK and US

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Good Morning, President Trump dominated the headlines and the market’s attention last week, as he returned to the White House much earlier than anticipated full of vim and vigour. The markets responded positively, and risk appetite returned which helped beta currencies such as sterling, which ended slightly better on the week at $1.2975.

There is still a slight question mark about his health and whether he is fully recovered, so currencies will stay jittery for the foreseeable future. Away from the health of the president and American politicking over fiscal stimulus, the overriding driver of the markets for sterling is Brexit. With the self-imposed deadline of the 15th October for agreement over a trade deal just a few days away now, we are expecting the markets to be extremely sensitive to Brexit headlines.

Looking forward, the focus this week will be on the EU summit on Thursday and Friday, which coincides with Boris Johnson’s deadline. At the time of writing, it seems extremely unlikely that an agreement will be reached by then and with Michel Barnier saying October 31st  is the “realistic deadline” an extension of the talks is to be expected, even if it is just to discuss how best to cope with a no-deal. We will also be watching how the second wave of COVID-19, both in the UK and Europe, develops. So far, the spread has been ignored, but the economic impact is still real. The harm already inflicted was reflected in last week’s economic data which was worse than anticipated both in the UK and America and sadly local lockdowns look more and more likely to increase as will the damage they inflict.

Sterling
As mentioned, the week ahead is a big week ahead for sterling as we enter the end game on the Brexit negotiations, with the most likely outcome an agreement to continue negotiations into November. Sterling is sitting just on the key technical level of $1.3032* which many feel is the middle of its trading range, reflecting a 50/50 chance of a no-deal. If there are any truly positive signs of a breakthrough, the pound would break this level and rapidly appreciate. The pound has been holding steady around the €1.1000 level, but this week we expect to see a little more movement. With economies both in the UK and Europe set to suffer more from COVID-19 induced restrictions, the pressure is firmly on both sides to agree to a compromise and increasingly the market senses that a resolution will only come from direct intervention from the key players involved, namely Angela Merkel, Emmanuel Macron and Boris Johnson. The focus on the data front will be the release of unemployment data on Thursday, which is expected to be gloomy as we approach the end of the main furlough scheme. The only scheduled noteworthy speech is from BoE Governor Andrew Bailey who is speaking late this afternoon.
*50-day moving average

EURO
The euro enjoyed a relatively stable week against both sterling and the dollar, despite the verbal interventions of the ECB to try and talk the single currency down. We expect to see more jawboning from ECB officials especially when the currency approaches $1.2000 which appears to be the level that concerns the central bank. In the coming week, the main story will be Brexit and naturally what is good for sterling will be good for the euro as both sides equally need a deal. Christine Lagarde is scheduled to speak late this morning and again on Wednesday but apart from that, it’s a quiet week until the EU summit on Thursday and Friday. The only major data of note is from Germany where the Consumer Price Index is released Tuesday as is the latest ZEW economic survey.

US
Today is Columbus Day, a national holiday in the US, so we are expecting a very quiet start to the week. Over the weekend Donald Trump made a public appearance at the White House and was declared COVID-19 negative. Despite the clean bill of health surprisingly the second presidential TV debate has been cancelled. As the election looms ever closer, politics and Donald Trump’s health will naturally continue to dominate the headlines. With the opinion polls now suggesting a clear win for Joe Biden, the risk of the result being contested is receding which will support riskier currencies and suppress the dollar. On the data docket this week we have inflation figures released on Tuesday, jobless claims on Thursday and retail sales on Friday.

Scandi
Towards the end of last week, we saw some hefty movements in the krona caused by the global switch in risk assessment. Speculation has increased in Sweden about the Vänster Partiet (the left-wing coalition partner of the ruling Social Demokraterna party) joining the opposition parties in a vote of no confidence in the government. Should this happen, the fragile coalition would falter, and new elections would have to be held. This unstable political situation will most likely dominate movements in the krona from a macro-perspective the coming days. We will also be keeping a close eye on the CPI release on Tuesday and the unemployment rate out on Thursday.

The Norwegian krone has recouped some lost ground in October and is back trading at levels last seen in mid-September against major crosses. With no major data releases out this week, we will be monitoring the oil price as it has a direct effect on the oil-exporting country’s currency.
We rarely mention the Danish krone since it is pegged against the euro, making it easier to just follow the euro’s movements, however, it is worth noting that the EURDKK is currently trading at its lowest level since 2018, even though EURUSD is currently near its highest level since 2018.

ROW
In common with other G10 currencies, the Japanese yen remains beholden to moves by the US dollar and as a safe haven currency, it will benefit from any political fallout in America during the run-up to the election. The aussie dollar will be dominated by two events in the week ahead, firstly the speech from RBA Governor Philip Lowe on Wednesday ahead of the employment data which is due on Thursday. With the RBA stating the importance of jobs to its policy stance, it is unlikely that any surprises are in store. The kiwi will remain dominated by domestic politics with the general election on the 17th October which the incumbent is expected to win. As always, the Canadian dollar will be following its southern big brother but may gain some strength if oil stays relatively strong.

Question
What is a moving average?
A moving average is a popular technical analysis tool. Moving averages are usually calculated to identify the trend direction of a currency or to determine its support and resistance levels. It is a trend-following indicator because it is based on past prices. The longer the time period for the moving average, the greater the lag and the greater the influence. So, a 200-day moving average will have a much greater degree of lag than a 20-day MA because it contains prices for the past 200 days. The 50-day and 200-day moving average for currencies are widely followed by investors and traders and are amongst the most important trading signals. As they are so closely followed, they can become self-fulfilling prophecies and when a currency breaks through a moving average many investors will follow the move.

Autumn storms ahead

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Good Morning, as the world’s markets waited all last week for the release of the Non-Farm payrolls data only for more serious news to partly side-line the event with the announcement that President Trump and his wife Melania had tested positive for COVID-19.

The markets knee jerk reaction was a flight to safety which benefitted the dollar, yen and to a lesser extent the euro.

The health of the President and its effect on the forthcoming election, now under 30 days away, will certainly dominate the headlines and the markets over the next week and for some time after. The markets will also remain fretful that other members of his administration could fall victim to the virus, especially Vice-President Mike Pence.

When the employment numbers were released and digested, they were somewhat underwhelming and served to underline that the recovery in the US is stalling and the need for a fiscal stimulus package to be delivered sooner rather than later. Unfortunately, the combination of the President’s illness and the forthcoming election makes the agreement of a stimulus package further away than ever. Looking ahead to Thursday the markets will focus on increased interest on the Vice-Presidential debates. The market is likely to continue to be volatile and with China on holiday all week, volumes will be thinner which in turn will exaggerate moves. Closer to home it will continue to be all about Brexit. After Boris Johnson’s Saturday call with Ursula von der Leyen, they both said that significant differences still exist and that both sides need to intensify efforts to find solutions. As the Brexit clock ticks ever louder the efforts of both sides to find a solution will dominate domestic news.

UK

Sterling had a good week making gains over the dollar to close above $1.2900 and on the euro where it settled €1.1000. So far sterling has stayed immune to the recent outbreaks of COVID-19 and traders’ attention has instead been concentrated on the chances of a Brexit trade deal. The coming week will be dominated by Brexit and after Saturday’s call between the leaders yielded little movement sellers may reappear.  Also as a beta currency sterling is vulnerable to the buffeting caused by changes in risk assessment.  The data docket looks a little bare in the week ahead with only August’s Gross Domestic Product and Manufacturing production being released on Friday.

Euro

With COVID-19 infections creeping up, the lack of agreement on the recovery fund is starting to concern traders and will continue to do so unless these concerns are addressed. However, these worries were side-lined as the euro benefitted from its safe-haven status as a risk-off mood returned to the markets and with President Trump in hospital this is set to continue. Retail sales are released later this morning and after these figures the economic calendar is light but there is a European Finance ministers meeting on Tuesday and a selection of speakers from the ECB during the week including Christine Lagarde twice on Wednesday. The drop in inflation may be starting to worry the ECB and the release of the minutes of their early September meeting may give a clue to how they are thinking about further stimulus.

US

The focus, of course, will be on the President’s health in the coming week and the shifts in risk sentiment associated with it. There was a rise in the Vix index last week, often known as the fear index, and the market was already bracing itself for heightened volatility ahead of the announcement of Donald Trump’s illness.  After the disappointment of the jobs report last Friday the market will turn its attention back to Fed this week with Fed Chairman Jerome Powell delivering a speech on Tuesday and the release of September’s FOMC meeting notes on Wednesday. Very little else of any importance is released apart from ISM services data today and the weekly employment figures on Thursday.

Scandi

Last week it was confirmed what many had feared: Swedes spent and shopped less which meant that retail sales contracted by 0.3% on a month-by-month basis. However, there was some light seen at the end of the tunnel when PMI Manufacturing data which came in showing that manufacturing activity had expanded. The krona remains rangebound and still cannot return to the levels it traded at during the summer against all major crosses. This week we are watching the industrial orders, the budget balance, and Swedish Housing Price Data. Any further mention of lockdowns will naturally grab our and the market’s attention. The Norwegian krone is still under pressure and this week the market will be watching out for the GDP figure and the latest inflation figures released on Friday which are expected to be well above most other major economies at 2%.

ROW
The Reserve Bank of Australia meets this week and more dovish rhetoric is expected, but this is likely to pale into insignificance when seen in the light of the likely shifts in global risk sentiment. Its near-neighbour the kiwi is also a hostage to global risk movements although it does have its own election looming on 17th October. The main beneficiary of uncertainty over both the US election and President Trump’s illness will most likely be the Japanese yen which looks set to strengthen whilst the Canadian dollar could suffer if its payroll number, released on Friday, is worse than anticipated and oil continues to weaken.

Question
What is the FOMC?
The Federal Open Market Committee (FOMC) consists of twelve members – the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. By law, the Federal Reserve conducts monetary policy to achieve its macroeconomic objectives of maximum employment and stable prices. FOMC announcements inform the world about the US Federal Reserve’s decision on interest rates and are one of the most anticipated events on the economic calendar as are the detailed minutes of the meetings which are released about two weeks after.

Have a great week,

Synergy Exchange