Overall confidence surrounding the UK economy remained weak after this week’s economic data.
Wall Street equity markets made headway on Friday with indices posting record highs.
Equity markets also held firm on Monday as markets looked to focus on longer-term coronavirus vaccine hopes. There was, however, unease over near-term US and European coronavirus concerns continued.
The dollar overall moved lower amid a lack of defensive demand and expectations of sustained negative real yields. EUR/USD edged higher to the 1.1850 area as the Chinese yuan held firm. Sterling made net gains into Friday’s close on Brexit trade hopes and held firm on Monday despite expectations of further delays as political developments dominated.
Euro-zone fourth-quarter GDP data was revised marginally to 12.6% from the earlier flash estimate of 12.7% to give an annual decline of 4.4%. Employment increased 0.9% on the quarter which provided some relief, although there was a 2.0% annual decline and labour-market reservations continued.
There were further concerns over the short-term Euro-zone outlook with reports that Italy would extend the regional lockdown system to beyond December 3rd. The German government also warned that it was too early to talk about a turnaround in covid infections and no easing of restrictions was possible yet. The government will meet again on Monday to discuss the situation with expectations that there will be a further tightening of restrictions.
US producer prices increased 0.3% for October from 0.4% previously with a 0.5% annual decline while core prices increased 1.1% over the year and close to consensus expectations. Markets remained very confident that the very expansionary Federal Reserve monetary policy would continue.
The University of Michigan consumer confidence index declined to 77.0 for November from 81.8 previously and below consensus forecasts of 82.0. The current conditions index was little changed while there was a notable decline in the expectations component.
The dollar overall lost ground amid expectations of sustained negative real interest rates and EUR/USD secured tentative net gains to the 1.1830 area. The dollar edged lower on Monday and EUR/USD nudged higher to the 1.1850 area as the Chinese yuan posted gains and commodity currencies made headway.
US yields edged higher on Friday, but the dollar was unable to secure significant support and USD/JPY retreated to lows around 104.60 against the Japanese currency.
US networks finally called the final state Presidential election results with Biden projected to win 306 votes in the Electoral College after winning Arizona while the recount will continue in Georgia. President Trump continued to threaten legal action, although market reaction was limited.
Pro-Trump protests in Washington were broadly peaceful which provided some relief, but there were still concerns over risks posed by delays in engaging with the transition progress. There was also further speculation that Trump would enact hard-line policies on China over the next few weeks.
There were fresh concerns over coronavirus developments in Japan with emergency talks to take place late on Monday. Third-quarter GDP, however, increased 5.0% after a 7.9% contraction previously and above consensus forecasts of 4.4% which provided some relief.
Chinese industrial production increased 6.9% in the year to October, unchanged from the previous figure and marginally below market expectations, with retail sales growth held at 4.3% from 3.3% previously. The dollar overall remained on the defensive with USD/JPY just above 104.50 in early Europe as wider sentiment remained weak.
Overall confidence surrounding the UK economy remained weak after this week’s economic data, although there was some evidence that UK coronavirus cases were starting to stabilise. There was further speculation that the impending departure on Prime Minister Johnson’s chief adviser Cummings would trigger a more conciliatory stance towards the EU/UK trade talks. This speculation was enhanced towards the European close as Cummings left Downing Street immediately.
GBP/USD recovered to near 1.3200 with GBP/EUR rallying to the 1.1150 area as choppy trading continued and politics dominated.
Over the weekend, there were some optimistic comments from UK government officials, but EU officials stated that there had been less progress than hoped for. UK sources added that there were still significant gaps and both sides indicated that talks were likely to miss another deadline with negotiations extending beyond this week.
Sterling edged lower at the Asian market open with Prime Minister Johnson also self-isolating, but gradually regained ground as the dollar retreated. Markets still expect a trade deal would be secured this month and GBP/USD traded just above 1.3200 with GBP/EUR around 1.150, but tensions will intensify.
|08:40||RBA Assistant Gov Lowe Speaks|
|09:00||CPI (EU Norm) Prelim YY(OCT)||-0.50%||-0.30%|
|09:00||CPI (EU Norm) Prelim MM(OCT)||-0.60%||0.20%|
|09:00||CPI (EU Norm) Final MM*(OCT)||0.60%|
|09:00||CPI (EU Norm) Final YY*(OCT)||-0.60%|
|12:30||USD Export Price Index (M/M)(OCT)||0.6|
|12:30||USD Import Price Index (M/M)(OCT)||0.30%|
|13:30||CAD Manufacturing Shipments (M/M)(SEP)||-1.40%||-2.00%|
|22:30||NZD Business NZ PMI(OCT)||54|
|13:15||CAD Housing Starts(OCT)||209.0K|