News last week that a Covid vaccine may soon be ready fuelled a surge in market confidence. Equity markets are generally higher as a result, with bond yields also rising. Exchange rates moves have been less marked with reports about Brexit negotiations leading fluctuations in sterling. The negotiations continue, with some suggestions they may continue into December.
With the vaccines still at testing stages, it is unclear when one may be available and how quickly it may be distributed. Meanwhile, Covid cases are increasing in most places, with further lockdowns introduced. As such the data is likely to worsen in the fourth quarter. The UK posted a record Q3 rise of 15.5%, but with September growth down to just 1.1%. Employment fell by 164k in the last 3 months (unemployment up to 4.8%), which doesn’t bode well for the final quarter.
Much of this week’s data calendar is ‘old news’. The retail sales update will show where we were before lockdown, which was already slowing after 5 strong months. Consumer confidence figures will reflect the lockdown, but not potential virus benefits. Inflation is expected to be around the 0.5% level in September. Public finances will continue to be driven by the negative impact of Covid support on the budget deficit.
GBPEUR – 1.1148
GBPUSD – 1.3212
Last week saw a significant drop in the German November ZEW survey expectations due to concerns over lockdown measures. Consumer confidence data this week will reflect the impact of lockdown. The data will have been collected too early to be impacted by vaccine hopes. The European Central Bank expressed cautious optimism around the Covid vaccine, with an emphasis on economic growth and providing support.
The informal deadline of this weekend for a conclusion of UK-EU trade talks was missed again. There is pessimism that the two sides are still a long way apart on some key issues. There does not seem to be much chance of a deal ahead of the EU Summit at the end of the week. Rumours suggest both sides may accept the talks continuing into December. The UK will leave the EU at the end of the year so any deal would still have to be ratified by both the EU and UK parliaments before then.
EURUSD – 1.1852
EURGBP – 0.8970
President-elect Joe Biden continues to prepare to be President from January. President Trump is still refusing to accept the outcome and concede. The court cases that have been instigated have not gone well, with a series of losses in cases challenging outcomes in certain counties. This refusal to concede could have a negative impact on getting the Covid pandemic under control.
This week, we will see a range of data including retail, industrial production and housing. Whilst Covid cases have continued to pick up since the summer, the slowdown in the US economy has not been as bad as expected. The US has so far not followed Europe in imposing significant new restrictions. As a result, it is less likely that economic output will fall back in the fourth quarter. However, that may change if Covid cases continue to accelerate.
GBPUSD – 1.3212
EURUSD – 1.1852
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*Interbank rates correct as at 7 am on the date of publishing.