The Week Ahead – U.S Politics, COVID-19, Brexit, and Private Sector PMIs in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 23rd October. In the week prior, 56 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

On Tuesday, Wednesday, and Thursday, housing sector figures for September are in focus.

With mortgage rates hovering close to historic lows, the numbers are unlikely to have a material impact on the Dollar.

On Thursday, however, U.S jobless claims figures will influence ahead of private sector PMIs on Friday.

October’s prelim services, manufacturing, and composite PMIs are due out at the end of the week.

Expect the Services PMI to be the key driver. The markets will be looking for a pickup in service sector activity…

Away from the economic calendar, we are just over 2-weeks away from the U.S Presidential Election. Wednesday’s final live televised Presidential debate will garner plenty of attention as will chatter from Capitol Hill. We can also expect increased interest in the Senate Election polls.

The Dollar Spot Index ended the week up by 0.67% to 93.682.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Tuesday, German wholesale inflation figures are due out ahead of a busier 2nd half of the week.

On Thursday, Germany is back in focus, with November consumer climate figures due out.

Prelim October private sector PMIs from France, Germany, and the Eurozone will be the key drivers on Friday, however.

We can expect plenty of sensitivity to the numbers. A new spike in new COVID-19 cases in France and other parts of the EU may have impacted activity at the start of the quarter.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week down by 0.91% to $1.1718.

For the Pound:

It’s a busy week ahead on the economic calendar.

The markets will have to wait until Wednesday, however, for the first set of numbers.

Inflation figures for September are due out ahead of CBI industrial trend orders on Thursday.

We would expect the Pound to be sensitive to the inflation figures ahead of a busy end to the week.

On Friday, retail sales figures for September and prelim October private sector PMIs will provide direction.

With the BoE open to negative rates, dire numbers will test support for the Pound.

Of greater influence in the week, however, will be Brexit and COVID-19 news.

The GBP/USD ended the week down by 0.93% to $1.2915.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

At the start of the week, wholesale sales figures for August are in focus on Monday.

We don’t expect too much influence from the numbers, however.

On Wednesday, September inflation and August retail sales figures will provide direction.

From elsewhere, expect GDP numbers from China and prelim private sector PMIs from the Eurozone and the U.S to also influence.

Away from the economic calendar, risk appetite will likely be dictated by COVID-19 and the U.S Presidential Election polls. There’s also the final presidential debate to consider on Wednesday.

The Loonie ended the week down by 0.52% to C$1.3189 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

The lack of stats will leave the Aussie Dollar firmly in the hands of market risk sentiment in the week.

Expect China’s GDP numbers and prelim PMIs from the Eurozone and the U.S to influence

On the monetary policy front, the RBA meeting minutes at the start of the week will garner interest. There has been the talk of an RBA move next month, the minutes could reveal what is on the cards…

The Aussie Dollar ended the week down by 2.20% to $0.7081.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

In the 1st half of the week, 3rd quarter business confidence figures are due out. A pickup in confidence would provide support to the Kiwi ahead of a busy Friday.

Trade data for May and 3rd quarter inflation figures will influence at the end of the week.

While the stats will provide direction, however, economic data from China and COVID-19 will likely be the key drivers.

The Kiwi Dollar ended the week down by 0.96% to $0.6602.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Trade data for September will draw interest at the start of the week ahead of inflation at the end of the week.

We don’t expect the numbers to have too much influence on the Yen, however.

The key driver for the Japanese Yen, however, will be COVID-19 news and U.S politics.

The Japanese Yen ended the week up by 0.21% to ¥105.40 against the U.S Dollar.

Out of China

It’s a busy week ahead on the economic data front.

3rd quarter GDP numbers due out on Monday will be the key driver for the Yuan and market risk sentiment.

September’s industrial production, retail sales, and unemployment figures will also influence.

Barring particularly dire numbers, the fixed asset investment numbers should have a muted impact.

On the monetary policy front, the PBoC is in action on Tuesday. The markets are expecting the PBoC to leave loan prime rates unchanged. Any unexpected rate cut could spook the markets…

The Chinese Yuan ended the week down by 0.04% to CNY6.6976 against the U.S Dollar.

Geo-Politics

UK Politics:

On Friday, Boris Johnson announced that Brexit negotiations were over. Downing Street added the EU chief negotiator Barnier does not need to return to London in the week ahead.

Following the EU’s attempts to leave the ball in Britain’s court, with Fisheries a key issue, it now rests with the EU to compromise. Johnson has been clear that it would not leave fishing access unchanged, despite Macron’s attempts to strong-arm Britain into yielding.

For French fishermen, it would ultimately mean no access to UK fisheries should Britain leave without a deal…

Also at the start of the week, the British Prime Minister is due to announce more containment measures. With the number of new COVID-19 cases continuing to rise, further restrictions would be Pound negative.

U.S Politics

After last week’s individual town hall sessions, the final live televised debate will take place on Wednesday.

It will be a chance for Trump to narrow the gap ahead of the 3rd November Election.

If past performance is any indicator of future performance, however, it could just give Biden a greater edge.

As the markets begin to write-off a Trump victory, the focus will likely shift to the Senate Elections.

A blue wave is expected that would support further stimulus in the New Year.

The Weekly Wrap – Brexit, COVID-19, and U.S Politics Drive the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 16th October.

A total of 56 stats were monitored, following 43 stats from the week prior.

Of the 56 stats, 24 came in ahead of forecasts, with 21 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 36 stats, 27 reflected a deterioration from previous.

For the Greenback, it was back into the green after 2 consecutive weeks in the red. The Dollar Spot Index rose by 0.67% to 93.682. In the week ending 9th October, the Dollar Spot Index had fallen by 0.87% to 93.057.

Market risk appetite waned in the week. There were a number of factors driving demand for the Dollar. A lack of progress towards a U.S stimulus bill and a spike in COVID-19 cases were front and center in the week.

Disappointing economic data and Brexit woes also supported the demand for the safety of the Dollar.

Out of the U.S

It was a relatively busy week on the economic data front.

Inflation figures drew interest early in the week. In the 2nd half of the week, however, jobless claims and retail sales figures were the key drivers. Prelim October consumer sentiment figures were also in focus late on Friday.

In the week ending 9th October, initial jobless claims stood at 898k, which was up from 845k from the week prior. The numbers reinforced the view that the labor market recovery had stalled.

A combination of dire labor market conditions, rising new COVID-19 cases, and a lack of further stimulus was a bad combination.

At the end of the week, retail sales impressed, however. In September, retail sales rose by 1.9%, with core retail sales rising by 1.5%. Economists had forecasted increases of 0.5% and 0.7% respectively.

Aligned with the retail sales figures was a further pickup in consumer sentiment. The Michigan Consumer Sentiment Index rose from 80.4 to 81.2 in October, according to prelim figures. The Expectations Index increased from 75.6 to 78.8.

The only negative on the day was an unexpected 0.6% fall in industrial production.

In the equity markets, the NASDAQ rose by 0.79%, with the Dow and S&P500 gaining 0.07% and 0.19% respectively.

Out of the UK

It was a relatively busy week on the economic data front.

Key stats included August unemployment rate and employment change and September claimant count figures.

While claimant counts came in lower than expected, employment fell by more than expected over the 3-months to August.

A 153k fall in employment led to an increase in the unemployment rate from 4.1% to 4.5%.

While the stats provided direction, it was ultimately Brexit and COVID-19 that sank the Pound in the week.

A continued rise in new COVID-19 cases and a new round of containment measures were Pound negative.

More significantly, however, was a lack of progress towards a Brexit agreement, with the EU pushing for more talks next week.

On Friday, Boris Johnson announced that it was time to prepare for a no-trade deal Brexit unless the EU changed its stance. Downing Street also stated that there was no point in EU negotiator Michel Barnier returning to London in the week ahead.

In the week, the Pound fell by 0.93% to $1.2915. In the week prior, the Pound had risen by 0.78% to $1.3036.

The FTSE100 ended the week down by 1.61%, partially reversing a 1.94% gain from the previous week.

Out of the Eurozone

It was a relatively busy week on the economic data front.

Early in the week, key stats included ZEW Economic Sentiment figures for the Eurozone and Germany.

The indicators flashed red for October. Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3. A lack of progress on Brexit and jitters over the U.S Presidential Election weighed in October.

Mid-week, industrial production figures for the Eurozone came up short of expectations, rising by just 0.7%. In July, production had jumped by 5.0%.

In the 2nd half of the week, Eurozone trade data and finalized inflation figures for September were in focus.

Inflation figures reaffirmed market concern over deflationary pressures. Trade data also failed to impress, with the Eurozone’s trade surplus narrowing from €27.9bn to €14.7bn in August.

While the stats provided direction, a marked increase in new COVID-19 cases weighed on the EUR in the week. France and other member states were forced to reintroduce containment measures amidst the 2nd wave.

For the week, the EUR fell by 0.91% to $1.1718. In the week prior, the EUR had risen by 0.94% to $1.1826.

For the European major indexes, it was a bearish week. The CAC40 and EuroStoxx600 fell by 0.22% and by 0.77% respectively, with the DAX30 declining by 1.09%.

For the Loonie

It was a quiet week on the economic data front.

Key stats included August’s foreign security purchases and manufacturing sales figures.

Neither set of numbers had an impact, however, as the fresh spike in new COVID-19 cases weighed on market risk sentiment.

The threat of a reintroduction of lockdown measures pegged back crude oil prices in the week.

In the week ending 16th October, the Loonie fell by 0.52% to end the week at C$1.3189. In the week prior, the Loonie had risen by 0.87%.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 16th October, the Aussie Dollar slid by 2.20% to $0.7081. The Kiwi Dollar ended the week down by a more modest 0.96% to $0.6602.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats consumer confidence and employment figures.

It was a mixed bag for the Aussie Dollar. While consumer confidence continued to improve, employment figures were somewhat disappointing.

The unemployment rate rose from 6.8% to 6.9%, driven by a 29.5k fall in employment.

For the Aussie Dollar, it was ultimately market sentiment towards monetary policy and risk aversion that did the damage. There is the talk of an RBA next month…

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included electronic card retail sales figures and business PMI numbers.

The stats were Kiwi Dollar positive, with retail sales up by 5.4% and the PMI rising from 50.7 to 54.0.

While positive, however, market risk aversion pegged the Kiwi Dollar back in the week.

For the Japanese Yen

It was also a relatively quiet week on the economic calendar.

August’s core machinery orders and finalized industrial production figures were in focus.

The stats were skewed to the negative in the week. Core machinery orders rose by just 0.2%, following a 6.3% jump in July. Industrial production was revised down from 1.7% to 1.0%.

Ultimately, however, it was market risk sentiment that delivered the support for the Yen.

The Japanese Yen rose by 0.21% to ¥105.4 against the U.S Dollar. In the week prior, the Yen had fallen by 0.31%.

Out of China

It was a relatively busy week on the economic data front following last week’s holiday.

Key stats included September’s trade data and inflation figures, which were skewed to the negative.

China’s U.S Dollar trade surplus narrowed from $58.93bn to $37.00bn, driven by a 13.2% jump in imports. Exports rose by a more modest 9.9%.

Inflationary pressures also softened at the end of the quarter. China’s annual rate of inflation softened from 2.4% to 1.7% in September. Wholesale deflationary pressures picked up marginally. The producer price index fell by 2.1%, following a 2.0% decline in August.

In the week ending 16th October, the Chinese Yuan slipped by 0.04% to CNY6.6976. In the week prior, the Yuan had risen by 1.42%.

The CSI300 rose by 2.36%, with the Hang Seng gaining 1.11%.

IMF Sees ‘Somewhat Less Severe Though Still Deep Recession in 2020’

European stocks are drifting lower in a volatile session on Wednesday after erasing earlier gains. Coronavirus news remains at the forefront despite the start of earnings season. U.S. equity markets are also giving back earlier gains after the major averages registered their first day of losses in five trading sessions on Tuesday.

In Europe, the UK’s FTSE 100 is trading 5960.04, down 9.67 or -0.16%. Germany’s DAX is at 12994.02, down 24.97 or -0.19% and France’s CAC 40 Index is trading 4934.33, down 13.28 or -0.27%.

The pandemic remains the key concern for investors with discouraging news that a pair of coronavirus drug trials have been paused in the U.S. over safety concerns.

Futures contracts tied to the Dow Jones Industrial Average added 1 point. They were higher earlier in the overnight session. S&P 500 futures and NASDAQ 100 futures gained 0.1% each.

COVID-19 Treatment Trials Put on Hold

Eli Lilly’s antibody treatment trial has been put on hold, the company confirmed to CNBC, and Johnson & Johnson announced Monday it has paused late-stage trials of its coronavirus vaccine candidate. While brief suspensions are routine in the world of drug trials, the latest cast added uncertainty on drug development timelines.

IMF Revises its global GDP Forecast Higher, but Warns the Economy ‘Remains Prone to Setbacks’

The International Monetary Fund on Tuesday turned slightly more positive on the global economy for this year, but warned of a “long, uneven and uncertain” recovery.

The global economy is now projected to contract by 4.4% in 2020 – an upward revision from an estimate of -4.9% made in June (which has now also been revised to -5.2% due to a new methodology used by the IMF). The IMF’s forecast assumes that social distancing due to the coronavirus pandemic will continue into 2021, and that local transmission will fall everywhere by the end of 2022.

“We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” the IMF’s chief economist, Gita Gopinath, said in the latest World Economic Outlook.

She added that the revision was driven by better-than-expected growth in advanced economies and China during the second quarter of the year and signs of a more rapid recovery in the third quarter.

However, the outlook warned that the coronavirus crisis is far from over.

The IMF projected “only limited progress” going forward and cut its gross domestic product growth expectations for next year to 5.2%, from an estimate of 5.4% made in June.

For a look at all of today’s economic events, check out our economic calendar.

Indices Take a Break. Time for The USD to Shine

After the surge on Monday, Indices are taking a rest.

Nasdaq is creating a small head and shoulders pattern.

SP500 is drawing a wedge pattern.

FTSE is flirting with a crucial dynamic resistance.

EURUSD came back below crucial horizontal support and broke the lower line of the flag.

GBPUSD is back below 1.3.

EURCHF is attacking the lower line of the pennant.

For a look at all of today’s economic events, check out our economic calendar.

American Indices With a Very Powerful Bullish Setup

Nasdaq and SP500 made huge inverse head and shoulders patterns and are advancing significantly higher

FTSE trying to break the upper line of the wedge

EURUSD climbed back above the 1.177 support

AUDUSD climbed back above 50 and 61,8% Fibonacci

GBPUSD broke the neckline of the iH&S formation

AUDNZD is testing major horizontal support

Gold broke major long-term dynamic resistance

For a look at all of today’s economic events, check out our economic calendar.

 

The Week Ahead: A Brexit Showdown, U.S Politics, and Economic Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 68 stats in focus in the week ending 16th October. In the week prior, 53 stats had been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic data front.

On Monday and Tuesday, September inflation and wholesale inflation figures are due out.

The focus then shifts to manufacturing sector activity and labor market numbers on Thursday.

Expect the Philly FED Manufacturing PMI for October and the weekly initial jobless claims to impact.

At the end of the week, retail sales and industrial production figures are due out, along with October consumer sentiment numbers.

Expect the retail sales and prelim Michigan consumer Sentiment figures to have the greatest impact.

Away from the calendar, the next Presidential debate on 15th October will also provide direction. That is assuming that Trump decides to attend…

The Dollar Spot Index ended the week down by 0.84% to 93.057.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Tuesday, ZEW Economic Sentiment figures for Germany and for the Eurozone are in focus.

Expect some EUR sensitivity to the numbers on the day.

The focus will then shift to Eurozone industrial production figures for August, due out on Wednesday.

At the end of the week, the Eurozone’s trade figures for August will also garner some interest.

Finalized inflation figures for member states and the Eurozone are also due out. Barring deviation from prelims, however, the numbers should have a muted impact on the EUR.

On the monetary policy front, ECB President Lagarde is scheduled to speak on a number of occasions in the week. Expect any forward guidance or views on the economy to influence.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week up by 0.94% to $1.1826.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

September claimant counts and August’s unemployment rate are due out on Tuesday and will influence.

BRC Retail Sales Monitor figures, due out in the early hours of Tuesday, will also draw some attention.

August’s employment change and average earnings figures are also due out but should have a muted impact on the day.

Away from the calendar, Brexit and COVID-19 will also provide direction. David Frost is due to attend talks in Brussels. The markets will be looking for an agreement.

The GBP/USD ended the week up by 0.78% to $1.3036.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

In a shortened week, August manufacturing sales figures on Friday will provide direction.

Market risk sentiment and crude oil prices will drive the Loonie ahead of Friday’s numbers.

OPEC and the IEA’s monthly reports are due out in the week. Projections on demand will be of particular interest as the global economic recovery sputters.

The Loonie ended the week up by 1.41% to C$1.3121 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead on the economic calendar.

On Wednesday, consumer confidence figures are in focus ahead of September employment figures on Thursday.

Expect the employment figures to have a material impact on the Aussie Dollar.

At the end of the week, new home sales figures will likely have a muted impact on the Aussie.

On the monetary policy front, RBA Governor Lowe is scheduled to speak on Thursday. Expect the Aussie Dollar to be particularly sensitive to any chatter on monetary policy.

While the stats will influence, economic data from China and U.S politics will be the key drivers.

The Aussie Dollar ended the week up by 1.10% to $0.72400.

For the Kiwi Dollar:

It’s also a relatively quiet week ahead on the economic calendar.

Key stats include Electronic card retail sales figures on Tuesday and Business PMI numbers on Friday.

Expect both sets of numbers to influence in the week.

While the stats will influence, economic data from China and updates from Washington will be the key drivers.

From China, trade, industrial production, and inflation figures will influence in the week.

The Kiwi Dollar ended the week up by 0.38% to $0.6666.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Key stats include core machinery orders, finalized industrial production, and tertiary industry activity figures.

We would expect the core machinery order numbers to garner the greatest interest in the week.

The key driver for the Japanese Yen, however, will be chatter from Capitol Hill and the U.S Presidential Election race.

The Japanese Yen ended the week down by 0.31% to ¥105.62 against the U.S Dollar.

Out of China

It’s a busy week ahead on the economic data front.

Mid-week, September trade figures will draw plenty of attention. The markets will be eyeing both the import and the export figures.

The focus will then shift to inflation, industrial production, and unemployment figures due out on Thursday.

Fixed asset investment figures are also due out but would likely have a muted impact on the markets.

The Chinese Yuan ended the week up 1.42% to CNY6.6947 against the U.S Dollar.

Geo-Politics

UK Politics:

It’s last chance saloon for Britain and the EU to come up with the needed compromises to deliver a trade agreement.

Expect plenty of chatter as the markets continue to pin hope on a last-minute agreement.

Failure to come up with a deal will sink the Pound, which has very little going for it at present.

The UK economy is in trouble and the government is expected to inflict more pain in the week ahead. A sharp pickup in new COVID-19 cases is going to force the government to reintroduce containment measures this week.

U.S Politics

There’s never a dull moment in U.S politics and the markets have abandoned Trump and his quest for a 2nd term.

Trump and Biden are scheduled to go head-to-head in the 2nd of 3 debates on Thursday.

Following Trump’s hospitalization, however, the debate had been changed to a virtual debate. The U.S President had responded by refusing to take part, which led to the cancellation of this week’s debate. For Trump, the next debate is still on for 22nd October. It may be too late, however… Trump’s latest loss was a court decision to allow the use of drop boxes and mobile sites to collect mail-in ballots in Pennsylvania. As a swing state, the Republicans are eager to overturn the ruling… It would be a blow should Trump also lose the appeal…

With the polls favoring a Biden/Harris clean sweep, the markets have warmed to Biden’s policies.

While a repeal of Trump’s tax bills is expected, Biden is expected to deliver greater fiscal support.

Don’t expect Trump to go down without a fight, however, which should make things interesting…

The Weekly Wrap – Trump and U.S Politics Drove Demand for Riskier Assets

The Stats

It was a quieter week on the economic calendar, in the week ending 9th October.

A total of 43 stats were monitored, following 74 stats from the week prior.

Of the 43 stats, 23 came in ahead of forecasts, with 17 economic indicators came up short of forecasts. 3 stats were in line with forecasts in the week.

Looking at the numbers, 26 of the stats also reflected an upward trend from previous figures. Of the remaining 17 stats, 14 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive week in the red, with the Dollar Spot Index falling by 0.84% to 93.057. In the week ending 2nd October, the Dollar Spot Index had fallen by 0.84% to 93.844.

Market risk appetite returned, with the U.S President returning to the Oval Office from the hospital. Stimulus was the key area of focus upon Trump’s return to the White House. Late in the week, Trump stated that stimulus talks with the Democrats had become productive. Nancy Pelosi was also upbeat, stating that she wanted a big deal.

On the U.S political front, there was also hope that a blue wave in the election would remove any contest over the outcome of the election.

Out of the U.S

It was a relatively busy week on the economic data front.

Key stats included September’s ISM Non-Manufacturing PMIs, August JOLT’s job openings, and the weekly jobless claims figures.

A pickup in non-manufacturing sector activity was the only positive on the data front. The PMI increased from 56.9 to 57.8.

Employment figures raised more red flags, however. Job openings came up short of expectations and July levels in August.

The weekly jobless claims figures also suggested a possible stall in the labor market recovery.

In the week ending 2nd October, initial jobless claims came in at 840k, down marginally from 849k from the week prior.

For riskier assets, however, U.S politics and the continued hope of a COVID-19 relief Bill delivered support.

Concerns over a lengthy contest over the outcome of the U.S Presidential Election also eased in the week.

As things stand, the polls suggest a clean sweep for Biden and the Democrats. An orderly transition of power and easing political uncertainty was market positive in spite of Biden’s tax plans.

On the monetary policy front, the FOMC meeting minutes had a muted impact. FED Chair Powell, speaking mid-week, called on Congress to deliver more stimulus else face a slower economic recovery.

The comments had come ahead of Trump’s mid-week announcement to end stimulus negotiations until after the election.

In the equity markets, the NASDAQ rallied by 4.56%, with the Dow and S&P500 gaining 3.27% and 3.84% respectively.

Out of the UK

It was a busy week on the economic data front.

In the 1st half of the week, September PMIs were in focus. Upward revisions to the composite and services PMI and a pickup in construction sector activity were Pound positive.

The markets then had to wait until Friday, for GDP, trade, industrial production, and manufacturing production figures.

In August, Manufacturing production rose by just 0.7%, following a 6.9% jump in July. Economists had forecast a 3% increase.

The economy grew by 8% over the 3-months to August, reversing a 6.8% contraction in the 3-months to July.

There was a marked slowing in growth in August, however, with the economy growing by 2.1%. In July, the economy had grown by 6.4%.

Other stats including industrial production, which disappointed, and a mixed set of trade data that had a muted impact.

While the stats influenced, Brexit remained the key driver in the week. News of progress in talks and a possible willingness by Michel Barnier to compromise supported the Pound.

COVID-19 remained negative for the Pound, however. Expectations are for an announcement of more restrictions and further government support to limit the damage.

In the week, the Pound rose by 0.78% to $1.3036. In the week prior, the Pound had risen by 1.48% to $1.2935.

The FTSE100 ended the week up by 1.94%, following on from a 1.02% gain from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

In the early part of the week, September’s private sector PMIs for Italy and Spain and Eurozone retail sales figures were in focus.

Finalized PMIs for France, Germany, and the Eurozone also influenced, however.

The PMIs were skewed to the positive, with better than expected numbers from Italy. There were also upward revisions to Germany and the Eurozone’s services and composite PMIs.

Over the remainder of the week, the focus was on Germany. August factory orders, industrial production, and trade data were in focus.

While factory orders impressed, industrial production and trade data disappointed. The impact was muted, however, with the jump in factory orders aligned with Germany’s PMI numbers for September.

On the monetary policy front, the ECB monetary policy meeting minutes provided little influence late in the week.

For the week, the EUR rose by 0.94% to $1.1826. In the week prior, the EUR had risen by 0.73% to $1.1716.

For the European major indexes, it was another bullish week. The CAC40 and EuroStoxx600 rose by 2.53% and by 2.11% respectively, with the DAX30 gaining by 2.85%.

For the Loonie

It was a relatively busy week on the economic data front.

Key stats included August trade data and September Ivey PMI and employment figures.

The stats were mixed in the week.

While the trade deficit narrowed marginally, the Ivey PMI tumbled from 67.8 to 54.3 in September.

The disappointing PMI number came ahead of the all-important employment figures.

In September, 378.2k jobs were added following 245.8k jobs in August. Economists had forecast a 156.6k increase in employment. The jump in employment brought the unemployment rate down from 10.2% to 9.0%. Economists had forecast a fall in the unemployment rate to 9.7%.

Adding to the upside for the Loonie was a jump in crude oil prices in the week. WTI rallied by 9.58%, with Brent up by 9.12%.

The Loonie rose by 0.87% to end the week at C$1.3121. In the week prior, the Loonie had risen by 0.58%.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 9th October, the Aussie Dollar rose by 1.10% to $0.72400. The Kiwi Dollar ended the week up by 0.38% to $0.6666. A bullish end to the week delivered the upside for the pair.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats business confidence and trade data.

It was a mixed bag, with business confidence improving, while the trade surplus narrowed.

While the stats did provide direction, the RBA’s monetary policy decision was the main event of the week.

The RBA stood pat on policy while continuing to assure the markets of further support should the need arise. Some positive views on the recovery in labor market conditions provided the Aussie Dollar with support.

At the end of the week, the RBA Financial Stability Review also painted a relatively robust picture. The positive views on Australia’s financial stability added further support to the Aussie Dollar.

For the Kiwi Dollar

It was a quiet week on the economic calendar.

Key stats included business confidence figures for October.

The ANZ Business Confidence Index rose from -28.5 to -14.5 according to prelim figures.

Another widespread improvement in forward-looking indicators supported the improvement in confidence.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

September’s finalized services PMI and August household spending figures were in focus.

While there was an upward revision to the services PMI, the sector continued to contract at a marked pace.

Household spending also failed to impress. While spending up by just 1.7% in August, spending was down by 6.9% year-on-year.

The figures continued to reflect a weak economic recovery.

The Japanese Yen fell by 0.31% to ¥105.62 against the U.S Dollar. In the week prior, the Yen had risen by 0.27%.

Out of China

It was a quiet week on the economic data front, with China on Holiday for 4 of the 5 days.

Key stats included September’s private sector PMIs, which were positive for market risk sentiment.

September’s Caixin Service PMI at the end of the week was the only major start for the markets to consider.

An increase from 54.0 to 54.8 continued to support the positive sentiment towards the economic recovery.

The upside came from domestic demand, as overseas orders continued to decline.

In the week ending 9th October, the Chinese Yuan rose by 1.42% to CNY6.6947. In the week prior, the Yuan had risen by 0.48%.

The CSI300 rose by 2.04%, with the Hang Seng gaining 2.81%.

BHP to Acquire Additional 28% Stake in Shenzi Oil Field for $505 Million; Target Price GBX 1855

BHP Group, one of the largest diversified natural resource companies in the world, said on Tuesday that it has signed a sale agreement with Hess Corp to acquire an additional 28% stake in Shenzi oil and gas field in the Gulf of Mexico for $505 million.

The deal would bring BHP’s ownership to 72% and immediately add approximately 11,000 barrels of oil equivalent per day of production. The effective date of the transaction is July 1, 2020 with an expected close by December 2020.

“We forecast oil production of 99 million BoE for FY21 compared to company guidance of 95-102 million BoE and the acquisition of the additional stake in Shenzi would increase our base case production to 102 million BoE,” said Alain Gabriel, equity analyst at Morgan Stanley.

“The transaction’s rationale, according to the statement, is to target counter-cyclical acquisitions in high-quality assets that are (or near) production stage and that provide upside optionality to a price recovery at a low-point in the cycle.”

BHP Group’s shares traded 1.46% lower at GBX 1628.4 on Tuesday, the stock is down about 8% so far this year.

BHP Group stock forecast

Eleven analysts forecast the average price in 12 months at 1,855p with a high forecast of 2,200p and a low forecast of 1,650p. The average price target represents a 13.82% increase from the last price of 1,629.80p. From those 11, nine analysts rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is GBX 1,700 with a high of GBX 2,800 under a bull scenario and GBX 690 under the worst-case scenario. BHP Group has been assigned a GBX 1,800 price target by research analysts at Credit Suisse Group. The brokerage presently has a “buy” rating on the stock.

Other equity analysts also recently updated their stock outlook. Deutsche Bank restated a “buy” rating and issued a GBX 1,650 price target on shares of BHP Group. JP Morgan reiterated an “overweight” rating. Royal Bank of Canada lowered their price objective to GBX 1,900 from GBX 1,950 and set an “outperform” rating. Goldman Sachs Group lifted their price objective to GBX 1,850 from GBX 1,780 and gave the stock a “buy” rating.

Analyst view

“BHP’s portfolio mix and quality stand out among peers. The low-cost position of its assets enables the company to generate FCF yield even in a stress scenario. It maintains a strong B/S, giving the flexibility to pursue growth and/or increase cash shareholder returns, in particular given the company’s net debt target of $12-17 billion (post-IFRS16 adjustment) vs 1HFY20 levels of $12.5 billion,” Morgan Stanley’s Gabriel added.

“Spot FCF yields are comparable to peers, even without contributions from the Petroleum division, thus implying long-term optionality to a potential oil price recovery. We prefer BHP on a relative basis, given its attractive commodity mix ex-Iron Ore and free optionality on a potential oil price recovery.”

Upside and Downside risks

Upside: 1) Growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam) successfully executed. 2) Better operating performance, lower costs and capital expenditure. 3) Higher commodity prices – highlighted by Morgan Stanley.

Downside: 1) Execution issues at growth projects (Jansen potash, Escondida growth, Spence hypogene, Olympic Dam). 2) Weak operating performance, higher costs and capital expenditure. 3) Lower commodity prices.

EUR/USD Breaks Crucial Resistances, but GBP/USD and AUD/USD Fail

CAC tests the broken neckline as the closest support

FTSE bounces from the bottom line of the wedge pattern

SP500 breaks the neckline of a big inverse head and shoulders pattern

EURUSD breaks major dynamic and horizontal resistance

AUDUSD bounces with style from the crucial horizontal resistance

GBPUSD is doing pretty much the same

EURAUD aims the upper line of the range

AUDNZD fails to go higher after a beautiful bullish setup

For a look at all of today’s economic events, check out our economic calendar.

Weir Group’s Shares Jump 25% on Announcement to Sell Oil & Gas Division to Caterpillar

Weir Group Plc, a Scottish engineering company, said that it has entered into an agreement for the all-cash sale of its entire oil & gas division to Caterpillar Inc. for an Enterprise Value of $405 million, sending its shares up 25% on Monday.

The deal, which follows a collapse in global oil prices and a swathe of bankruptcies in the sector, will have a $70 million U.S. cash tax benefit for Weir, the company said.

In July, Illinois-based Caterpillar, considered a bellwether for economic activity, warned of continued sluggishness in equipment sales due to the coronavirus pandemic, with its main customers in highly cyclical businesses such as mining and construction, Reuters reported.

Weir Group’s shares jumped 25% to GBX 1,600 on Monday; however, the stock is also down 2% so far this year.

“Share price reaction looks fair. The Oil & Gas business has been a large drag on Weir’s valuation given its far more cyclical revenues and earnings, and in recent years, much lower margin. Stripping out Oil & Gas, we now value Weir on 2.4x EV/Sales, which is the bottom of the range of Tier 2 industrials,” said Ryan Gregory, equity analyst at Liberum.

“This reflects Weir’s lower rate of earnings growth in its mining businesses; Minerals has delivered an earnings CAGR of just 4% over the past five and ten years (up to 2019) compared to as much as 8% for Epiroc (which we expect to accelerate further). 2.4x EV/Sales (Minerals + ESCO) along with the Oil & Gas proceeds generates our new target price of 1575p (770p). With a 5% upside to the current share price, we remain on Hold.”

Executive comment

“We are pleased to have reached this agreement that delivers a great home for the Oil & Gas division and maximises value for our stakeholders. Alongside the previous sale of the Flow Control division and the acquisition of ESCO, it is a major milestone in transforming the Group into a focused, premium mining technology business,” Jon Stanton, Weir Group Chief Executive Officer said.

“It means Weir is ideally positioned to benefit from long-term structural-demographic trends and climate change actions which will increase demand for essential metals that must also be produced more sustainably and efficiently.  This will require innovative engineering and close customer partnerships that define Weir, and it is why we are so excited about the future.”

Weir Group stock forecast

Ten analysts forecast the average price in 12 months at 1,367.14p with a high forecast of 1,680p and a low forecast of 1,200p. The average price target represents a -7.22% decrease from the last price of 1,473.50p. From those ten, four analysts rated ‘Buy’, six analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Royal Bank of Canada raised their price target on shares of Weir Group to GBX 1,680 from GBX 1,420 and gave the stock an “outperform” rating. Morgan Stanley upped their price objective to GBX 1,210 from GBX 1,150 and gave the company an “equal weight” rating.

Several other analysts also recently issued reports on the company. Credit Suisse Group raised their target price to GBX 1,380 from GBX 1,150 and gave the stock a “neutral” rating. Liberum raised their target price to 1575p from 770p and Credit Suisse upped their stock price forecast to 1,600p from 1,380p.

Analyst comment

“Earlier this year, mgmt flagged its desire to sell the division and focus on being a “premium mining technology pure play”. This is a good outcome, we believe, across the board. It gets rid of a ‘problem child’, debt is reduced, this is a better price than we expected, and the remaining business is a very strong one,” said Andy Douglas, equity analyst at Morgan Stanley.

“The Minerals and ESCO divisions are quality businesses, and although they should not be held in the same esteem as the likes of Halma and Spirax Sarco, both divisions have proven to be impressive and resilient. We would therefore expect the ‘new’ Weir to trade at a premium to the wider UK Industrials sector. We also note that its closest peer, Epiroc (EPIA SS, NC), trades at c19x FY21F EV/EBITA (and c27x PER, although it enjoys a net cash position) based on Bloomberg consensus forecasts,” he added.

The Week Ahead – U.S Politics, Trump, Brexit, and Economic Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 53 stats in focus in the week ending 9th October. In the week prior, 74 stats had been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic data front.

On Monday, the market’s preferred ISM Non-Manufacturing PMI for September is due out. With some market jitters over the economic outlook, expect some sensitivity to the numbers.

The focus will then shift to JOLT’s job openings on Tuesday and the weekly jobless claims on Thursday.

On the monetary policy front, the FOMC meeting minutes due out on Wednesday will draw interest, as will FED Chair Powell. Powell is scheduled to speak on Tuesday.

After last week’s 1st presidential debate, however, it could be election fever that begins to grip the markets. The markets will also be monitoring Trump’s health in the week. Any deterioration and expect risk aversion to hit the markets.

The Dollar Spot Index ended the week down by 0.84% to 93.844.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Monday, September service sector PMIs for Italy and Spain are due out along with retail sales figures for the Eurozone.

Finalized composite and services PMIs are also due out from France, Germany, and the Eurozone.

Expect EUR sensitivity to the PMIs and retail sales figures.

On Tuesday, the focus then shifts to German factory orders, due out ahead of German industrial production and trade data.

Expect Tuesday’s factory orders and Wednesday’s industrial production figures to have the greatest impact.

On the monetary policy front, ECB President Lagarde is scheduled to speak in the week. On Thursday, the ECB monetary policy meeting minutes will also garner plenty of interest.

The EUR/USD ended the week up by 0.73% to $1.1716.

For the Pound:

It’s a particularly busy week ahead on the economic calendar.

At the start of the week, September’s finalized services and composite PMI are in focus. With the BoE talking of negative rates, expect Pound sensitivity to any revisions.

On Tuesday, retail sales figures are in focus ahead of a busy end to the week.

GDP, industrial and manufacturing production and trade data are due out on Friday.

Expect the GDP and manufacturing PMI figures to have the greatest impact on the day.

Away from the economic calendar, Brexit news and COVID-19 updates will also influence and could overshadow the numbers.

Updates from the weekend of high-level talks will set the tone.

The GBP/USD ended the week up by 1.48% to $1.2935.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

In the early part of the week, August trade data and September’s Ivey PMI will draw interest.

Expect Tuesday’s trade data to have the greatest impact.

The focus will then shift to September employment numbers due out on Friday.

Away from the economic calendar, crude oil prices will also influence. There are some concerns over the sustainability of the economic recovery amidst fresh COVID-19 spikes.

The Loonie ended the week up by 0.58% to C$1.3308 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead on the economic calendar.

On Tuesday, business confidence figures are in focus ahead of August trade data on Tuesday.

The main event of the week, however, will be the RBA’s interest rate decision on Tuesday.

Economic data has been largely positive since the last meeting, which should leave the RBA promising support if needed.

The Aussie Dollar ended the week up by 1.85% to $0.7161.

For the Kiwi Dollar:

It’s also a relatively quiet week ahead on the economic calendar.

Key stats include 3rd quarter business confidence figures on Tuesday and Business PMI numbers on Friday.

Expect both sets of numbers to influence in the week.

While the stats will influence, market risk sentiment and updates from Washington will be the key driver.

The Kiwi Dollar ended the week up by 1.45% to $0.6641.

For the Japanese Yen:

It is another busy week than usual on the economic calendar.

Key stats include finalized service sector PMI numbers, GDP figures, and household spending data.

Expect the GDP and household spending figures to have the greatest influence in the week.

Of greater influence in the week, however, will be the vice-president’s debate and updates from Washington. While progress towards a COVID-19 relief Bill would be Yen negative, Trump’s health will need to improve, else expect the Yen to find support.

The Japanese Yen ended the week up by 0.27% to ¥105.29 against the U.S Dollar.

Out of China

It’s a relatively quiet week ahead on the economic data front.

Service sector PMI numbers for September are due out at the end of the week.

In a shortened week, expect plenty of influence from the numbers. As things stand, economic indicators have pointed to a robust economic recovery from the COVID-19 lockdown. Any disappointing numbers will test market risk appetite.

Away from the economic calendar, chatter from the U.S will also draw interest in the week.

The Chinese Yuan ended the week up 0.48% to CNY6.7910 against the U.S Dollar.

Geo-Politics

UK Politics:

From the weekend, high-level talks between Boris Johnson and Ursula von der Leyen should support the Pound. The British PM and EU Commission President agreed on the importance of a trade agreement. During Saturday’s talks, it was also agreed to extend Brexit negotiations for another month.

With some progress having been made last week, Michel Barnier will travel to London this week. The following week, David Frost is then scheduled to travel to Brussels.

Ahead of talks this week, Barnier will reportedly visit Angela Merkel on Monday.

While the news is positive for the Pound it could be a choppy week, with updates from Germany and London to provide direction.

U.S Politics

While Election fever is picking up, the markets will now be looking for updates on the U.S President’s health.

On the campaign trail, the VPs go head to head this week. For Biden and the Democrats, Harris’s performance is particularly important. Now that Trump has been infected with COVID-19, however, Pence will also be in the spotlight.

Away from the campaign trail, there is also the COVID-19 relief Bill that will influence risk sentiment. There was no reported progress over the weekend, with Pelosi stating that the two sides continued to disagree on key areas.

The Weekly Wrap – Data, COVID-19, Brexit, and U.S Politics Drove the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 2nd October.

A total of 74 stats were monitored, following 32 stats from the week prior.

Of the 74 stats, 38 came in ahead forecasts, with 26 economic indicators came up short of forecasts. 10 stats were in line with forecasts in the week.

Looking at the numbers, 42 of the stats also reflected an upward trend from previous figures. Of the remaining 32 stats, 28 reflected a deterioration from previous.

For the Greenback, it was back into the red, with the Dollar Spot Index falling by 0.84% to 93.844. In the week ending 25th September, the Dollar Spot Index had rallied by 1.85% to 94.624.

Market risk appetite returned, in spite of a Presidential Debate blip mid-week, leading to the Dollar’s demise.

Even news of U.S President Trump being tested positive failed to reverse losses for the Dollar at the end of the week.

Progress towards a COVID-19 relief Bill on Capitol Hill contributed to the Dollar’s weakness.

Out of the U.S

It was a particularly busy week on the economic data front.

Key stats included September consumer confidence, ADP nonfarm, Manufacturing PMIs, weekly jobless claims, and labor market data.

Factory orders for August were also in focus at the end of the week.

Finalized 4th GDP and consumer sentiment figures, August inflation, trade, and personal spending data had a muted impact in the week.

The stats were skewed to the positive. Consumer confidence and ADP numbers impressed, with the weekly jobless claims seeing a decline in late September.

With personal spending on the rise, marginally softer growth in the manufacturing sector was the only negative ahead of Friday’s stats. The ISM Manufacturing PMI slipped from 56.0 to 55.4. While the headline figure was negative, the employment sub-index jumped from 46.4 to 49.6.

At the end of the week, the U.S labor market and factory order figures failed to support riskier assets.

Non-farm payrolls rose by 661K, following a 1,489k surge in August. The unemployment rate fell from 8.4% to 7.9%. Economists had expected an 850k rise in nonfarm payrolls in September.

Wage growth and the participation rate also suggested that the labor market recovery was spluttering.

Factory orders were also weaker than forecasts. A 0.7% rise in August came up short of a forecasted 1% increase. In July, orders had jumped by 6.5%.

In the equity markets, the NASDAQ rose by 1.48%, with the Dow and S&P500 gaining 1.87% and 1.52% respectively.

Out of the UK

It was a quieter week on the economic calendar.

Key stats included finalized 2nd quarter GDP and finalized September Manufacturing PMI numbers.

The stats were mixed in the week. Upward revisions to 2nd quarter GDP figures were Pound positive, while a downward revision to the Manufacturing PMI was negative.

In the 2nd quarter, the economy contracted by 19.8%, revised up from a 2nd estimate 20.4% contraction.

The manufacturing PMI was revised down from 54.3 to 54.1. In August, the PMI had stood at 55.2.

On the Brexit front, the Pound found support, however, with Brexit updates talking of possible compromise. High-level talks today, between Boris Johnson and Ursula von der Leyen will be key, however.

In the week, the Pound rose by 1.48% to $1.2935, reversing a 1.32% slide from the previous week.

The FTSE100 ended the week up by 1.02%, partially reversing a 2.74% slide from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

Key stats included prelim inflation figures, retail sales, unemployment, and manufacturing PMI numbers.

It was a mixed bag on the economic data front. Retail sales figures from France and Germany and German unemployment figures provided EUR support.

Manufacturing PMIs were also EUR positive, with Germany’s PMI hitting a 26-month high. For the Eurozone, a further pickup in activity and new orders drove the PMIs upwards.

Prelim inflation figures for September reflected a further pickup in deflationary pressures, however.

The Eurozone’s annual rate of core inflation softened from 0.4% to 0.2%. More significantly, however, consumer prices fell by 0.3%, year-on-year, following a 0.2% decline in August.

Month-on-month, consumer prices rose by 0.1%, partially reversing a 0.4% decline in August.

For the week, the EUR rose by 0.73% to $1.1716. In the week prior, the EUR had fallen by 1.77% to $1.1631.

For the European major indexes, it was a bullish week. The CAC40 and EuroStoxx600 rose by 2.01% and by 2.02% respectively, with the DAX30 gaining by 1.76%.

For the Loonie

It was a relatively busy week on the economic data front.

Key stats included RMPI and GDP numbers.

The stats were mixed in the week.

In August, the RMPI rose by 3.2%, reversing a 3.0% slide from July. Economic activity grew at a slower pace in July, however. Following a 6.5% jump in June, the economy grew by a more modest 3% in July.

The Loonie rose by 0.58% to end the week at C$1.3308. In the week prior, the Loonie had fallen by 1.38%.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar, which recovered some of the previous week’s losses.

In the week ending 2nd October, the Aussie Dollar rose by 1.85% to $0.7161. The Kiwi Dollar wasn’t far behind, ending the week up by 1.45% to $0.6641.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats included private sector credit, manufacturing, and retail sales figures.

The stats were skewed to the negative for the Aussie Dollar. Private sector credit was flat in August, with retail sales sliding by 4% to reverse a 3.2% rise in July.

The AIG Manufacturing Index fell from 49.3 to 46.7, with the decline attributed to the containment measures in Victoria.

For the Kiwi Dollar

It was a quiet week on the economic calendar.

Key stats included business confidence figures for September.

The ANZ Business Confidence Index rose from -41.8 to -28.5, which was down marginally from a prelim -26.0. Investment and employment intentions, along with optimism over the profit outlook supported the uptick in the month.

For the Japanese Yen

It was a busy week on the economic calendar.

Inflation, industrial production, retail sales, and 3rd quarter Tankan survey data were in focus.

The stats were skewed to the positive in the week.

Deflationary pressures eased in September, with core consumer prices falling by 0.2% in September, year-on-year. In August, consumer prices had fallen by 0.3%.

Industrial production rose by 1.7%, following an 8.7% jump in July, while retail sales fell by 1.9%. In July, sales had fallen by 2.9%.

Looking at the 3rd quarter Tankan numbers:

  • All Big Industry CAPEX Index increased by 1.4%, following a 3.2% rise in the 2nd Economist had forecast a 1.3% gain.
  • Big Manufacturing Outlook Index rose from -27 to -17, which was in line with forecasts.
  • The Large Manufactures Index increased from -34 to -27. Economists had forecast a rise to -23.
  • Large Non-Manufacturers Index increased from -17 to -12 in the 3rd Economists had forecast an increase to -9.

The Japanese Yen rose by 0.27% to ¥105.29 against the U.S Dollar. In the week prior, the Yen had fallen by 0.97%. While the stats influenced, the U.S presidential debate and news of Trump testing positive for COVID-19 supported the upside.

Out of China

It was a relatively busy week on the economic data front.

Key stats included September’s private sector PMIs, which were positive for market risk sentiment.

The NBS manufacturing PMI rose from 51.0 to 51.5, with the non-manufacturing PMI increasing from 55.2 to 55.9.

In September, the market’s preferred Caixin manufacturing PMI slipped from 53.1 to 53.0. In spite of the fall, new orders expanded at the most marked pace since January 2011. Export sales supported the pickup in new orders.

In the week ending 2nd October, the Chinese Yuan rose by 0.48% to CNY6.7910. In the week prior, the Yuan had fallen by 0.81%.

The CSI300 rose by 0.38%, with the Hang Seng gaining 0.96% in a shorted week.

Coronavirus, Job Market and Brexit Stresses Darken the Outlook for the British Economic Recovery

The United Kingdom faces a challenging fourth quarter with crises that stretch from fresh corona lockdowns to an expectation of sharply higher unemployment to prolonged negotiations still to come before a Brexit year-end deadline.

“We anticipated renewed partial lockdown and more intensive restrictions in the United Kingdom to arrive by Q3 and Q4 under our baseline scenario in July’s Q3 2020 Sovereign Update,” says Dennis Shen, primary analyst for the UK at Scope. “Here, we anticipated a deceleration in the UK’s recovery in the 2H 2020 with moderate economic contraction by Q4 GDP relative to Q3 in following the rapid economic gains between April and July.”

“As economies reopen, coronavirus cases rearise, and fresh restrictions follow – even though governments and public health sectors are considerably better prepared during this second wave.”

Scope currently projects for the UK an economic contraction of 10.4% in 2020 before recovery growth of 8.8% in 2021.

“Lockdown lite” thus far in response to a significant second wave

Although mortality ratios are lower during the second wave, UK daily confirmed cases have now reached record rates. Most concerningly, confirmed cases have been spreading to older demographics ahead of the winter.

So far, the UK is trying to contain the breakout with “lockdown lite” actions taken at sectoral and local levels such as limiting the number of people in a social group, as well as stricter local measures in virus hotspots.

Transition out of furlough scheme to abet market-based adjustment but raise unemployment

Rules that restrict economic activity – most critically within the UK services sector – and thus adversely impact demand and labour markets are occurring while the UK is phasing out current furlough wage support policies by end-October to be replaced with a six-month “Job Support Scheme” to subsidise wages for short-time work.

“The premise to this change in policies to abet market-based economic adjustment and arrest the sharp increase in public debt is understandable given many of the jobs may not come back and in view of a public debt ratio we see rising past 110% of GDP in 2020, after 85% in 2019,” says Shen. “However, there will be, in following, a significant increase in unemployment due to this policy transition, with the effects to reverberate across the economy in the fourth quarter and into 2021 as lost subsidised income and resulting curtailed private final demand interact with economic losses from renewed economic and social restriction.”

A year-end no-deal Brexit is unlikely; an agreement of some kind late in the year more probable

The public health and unemployment crises gather as Brexit negotiations enter a critical three-month stretch, including this week’s nominal final round of formal negotiation, before the transition state ends in December.

“We have considered a year-end no-deal Brexit as unlikely, especially amid a global health emergency that’s elevated the need for just-in-time supply chains and given political sensitivities of any Brexit disorder around the end-year Christmas period,” says Shen. “Instead, a last-minute agreement late in the year of some kind that avoids no-deal, announces progress made since March in free trade talks and gives the UK and the EU potentially additional time by extending standstill conditions for most if not all goods trade temporarily into 2021 to allow continued negotiation, give any time needed for Treaty ratification and/or support necessary preparations around customs infrastructure appears more likely.”

“No-deal remains unlikely from multiple vantage points – whether due to the significant economic, financial market, social and political dislocations that’d ensue – including probable loss of life amid the pandemic, the succour no-deal could give nationalists in Scotland surrounding independence, the frictions to trade no-deal facilitates within the UK itself between Great Britain and Northern Ireland or between the county of Kent and the rest of England in travel to Dover, the fact the UK is unprepared currently to replace arrangements with many global trading partners it benefits from preferential trade within the EU customs union, or the damage a no-deal scenario could deal to EU-UK relations longer term for both counterparties in key strategic areas.”

Things on Brexit could get worse before they get better

“The Internal Market Bill detailed earlier this month was likely designed to add pressure in trade negotiations – similar to the tactical use of parliamentary prorogation in 2019 – with the intention that such pressure could force the EU to back down on some negotiation red lines,” adds Shen.

“As such, things on Brexit could easily still get worse before they get better – with uncertainty looming around how much progress will have been made before a self-imposed 15-16 October European Council deadline. However, we maintain the view that even were the UK to agree on terms with the EU ultimately, there’s an ongoing cost of Brexit uncertainties as future relationship negotiations drag on into 2021. Entering 2020, we estimated this Brexit cumulative cost in lost output had already totalled to over 1.5% of UK GDP.”

“With protests against coronavirus restriction, higher short-run unemployment and banks relocating operations to Europe, economic output is foreseen contracting in the fourth quarter and the robust recovery foreseen in 2021 will take some hit,” says Shen. “This holds important credit implications for the United Kingdom’s AA/Negative ratings were economic uncertainty and rising public debt to not be firmly addressed.”

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

The Week Ahead – Data, Covid-19, Geopolitics and More to Keep the Markets Busy

On the Macro

It’s a busy week ahead on the economic calendar, with 79 stats in focus in the week ending 2nd October. In the week prior, 32 stats had been in focus.

For the Dollar:

It’s a particularly busy week ahead on the economic data front.

Early in the week, September consumer confidence figures will be the key driver on Tuesday.

The market focus will then shift to September ADP nonfarm employment change figures due out on Wednesday.

While finalized 2nd quarter GDP numbers are also due out, these are unlikely to have a material impact on the day.

On Thursday, August inflation and personal spending figures are due out along with the ISM Manufacturing PMI for September.

With the weekly jobless claims also due out, there’s plenty to consider ahead of Friday’s labor market numbers.

At the end of the week, September’s nonfarm payroll and the unemployment rate will also have a material impact.

Trade data, finalized Markit survey PMIs, factory orders, and Michigan consumer sentiment figures should have a limited impact in the week.

Throughout the week a plethora of FOMC members’ speeches is also scheduled.

On the geopolitics front, the markets will also get the first of the Presidential debates on Wednesday. It could be a humdinger of a week…

The Dollar Spot Index ended the week up by 1.85% to 94.642.

For the EUR:

It’s also a busy week ahead on the economic data front.

Early in the week, key stats include prelim inflation figures for September and economic sentiment figures for the Eurozone.

Following disappointing August inflation figures, expect any pickup in deflationary pressure to test the EUR.

On Wednesday, French and German consumer spending and German unemployment figures are due out.

Eurozone inflation figures will also be in focus ahead of another busy day on Thursday.

On Thursday, Manufacturing PMIs for Italy and Spain will be in focus. Expect plenty of interest in the numbers.

Barring any marked deviation from prelim, however, finalized numbers from France and Germany will be brushed aside. The Eurozone’s finalized PMI will influence, however.

Other stats in the week include the Eurozone’s unemployment rate that should have a limited impact.

On the monetary policy front, ECB President Lagarde is scheduled to speak on Monday and Wednesday.

With geopolitics also front and center, the EU leader summit later in the week will also need monitoring. Brexit will undoubtedly be a hot topic.

The EUR/USD ended the week down by 1.77% to $1.1631.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar. September’s finalized Manufacturing sector PMI on Thursday will be the key driver.

Finalized 2nd quarter business investment and GDP numbers are also due out on Wednesday. Barring any deviation from prelims, however, the numbers will likely have a muted impact on the Pound.

The lighter economic calendar will leave the Pound in the hands of Brexit and COVID-19.

The GBP/USD ended the week down by 1.32% to $1.2746.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

July GDP and August RMPI numbers are due out mid-week.

Expect July’s GDP to have the greatest impact on Wednesday.

From elsewhere, economic data from the U.S and China will also influence crude oil prices and the Loonie.

The Loonie ended the week down by 1.38% to C$1.3386 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead on the economic calendar.

On Wednesday, August building approvals and private sector credit figures are due out. We would expect the private sector credit figures to have the greatest impact.

On Thursday, the focus shifts to manufacturing numbers for September, ahead of August retail sales figures on Friday.

With RBA reliant upon consumer spending to support economic recovery, the retail sales figures will draw plenty of attention.

Market risk sentiment and economic data from China will also influence, however.

The Aussie Dollar ended the week down by 3.54% to $0.7031.

For the Kiwi Dollar:

It’s a relatively quiet week ahead on the economic calendar.

Key stats include August building consents and September business confidence figures.

Expect the business confidence figures to have the greatest impact on the day.

From elsewhere, China’s manufacturing PMIs will also influence in the week. We’ve seen plenty of Kiwi Dollar sensitivity to economic data from China.

The Kiwi Dollar ended the week down by 3.15% to $0.6546.

For the Japanese Yen:

It is a busier week than usual on the economic calendar.

In the 1st half of the week, September inflation figures are due out along with August industrial production and retail sales figures.

In the 2nd half of the week, the 3rd quarter’s Tankan survey numbers are due out that will draw plenty of interest.

The Japanese Yen ended the week down by 0.97% to ¥105.58 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

September’s private sector PMIs are due out on Wednesday. Expect the Caixin Manufacturing PMI to have the greatest impact on risk sentiment on the day.

Going into the week, industrial profit figures due out on Sunday that will also draw interest.

Expect the markets to be sensitive to any major speed bumps amidst U.S-China tensions.

The Chinese Yuan ended the week down 0.81% to CNY6.8238 against the U.S Dollar.

Geo-Politics

UK Politics:

It could be quite a week for the Pound. September is coming to a rapid end and the EU Leaders’ Summit is later in the week.

As things stand, Britain and the EU are nowhere near a blueprint. With the Internal Market Bill now also in the loop, is it judgment day? The markets have been waiting since the summer of 2016 to get a sense of what Brexit will look like.

With Johnson at the helm, the risk has always been for Britain to pull out of talks. Is this the week that the curtain comes down on the EU and its demands?

U.S – China

There’s never a dull moment. With the Presidential Election debates kicking off this week, China will likely remain a hot topic.

With Trump trailing Biden, time is running out, and smear tactics are more than likely. The markets may not like it, however.

U.S Politics

Presidential Election fever is picking. Brokers are calling for more margin to manage an anticipated spike in volatility. Trump continues to attack China on COVID-19 and tech.

The first of the Presidential Election Campaigns in the week ahead will set the tone.

Investors will get a sense of who the market favors during the course of the debate…

The Weekly Wrap – Economic Datta and COVID-19 Hit Riskier Assets

The Stats

It was a quiet week on the economic calendar, in the week ending 25th September.

A total of 32 stats were monitored, following 69 stats from the week prior.

Of the 32 stats, 13 came in ahead forecasts, while 17 economic indicators came up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 15 of the stats also reflected an upward trend from previous figures. The remaining 17 stats reflected a deterioration from previous.

For the Greenback, the recovery continued following last week’s pullback. In the week ending 25th September, the Dollar Spot Index rallied by 1.85% to 94.624. In the week prior, the Dollar had fallen by 0.44% to 92.926.

Out of the U.S

It was a relatively quiet week on the economic data front.

Key stats included September’s prelim private sector PMIs, the weekly jobless claims, and August durable goods and core durable orders.

The stats were skewed to the negative in the week.

Service sector growth slowed marginally, with the PMI slipping from 55.0 to 54.6, which weighed on the composite. The manufacturing sector saw a pickup in growth, however, with the PMI rising from 53.1 to 53.5.

Labor market numbers also disappointed. In the week ending 18th September, initial jobless claims came in at 870k. This was up from 866k from the week prior.

At the end of the week, durable goods orders and core durable goods orders wrapped up the week.

In August, durable goods orders rose by 0.4%, with core durable goods orders also rising by 0.4%. The numbers fell well short of forecasts and increases in July.

FED Chair Powell was also a key driver in the week.

Giving testimony on Capitol Hill, Powell talked of the need for more support from all levels of the U.S government. The FED Chair called for more government support to speed up the economic recovery. Powell noted that the outlook remained dependent upon the containment of the coronavirus. Aligned with other central banks, Powell also pointed out that, while the economy is showing a marked improvement, uncertainty remained.

In the equity markets, the NASDAQ rose by 1.11%, while the Dow and S&P500 fell by 1.75% and by 0.63% respectively.

Out of the UK

It was a quieter week on the economic calendar.

Key stats included September’s prelim private sector PMIs and CBI Industrial Trend Orders.

The stats were also skewed to the negative.

For September, the CBI Industrial Trend Orders fell from -44 to -48. Economists had forecast a rise to -40.

Of greater significance, however, was slower service sector growth at the end of the 3rd quarter.

The services PMI fell from 58.8 to 55.1. Manufacturing sector activity also slowed, with the PMI falling from 55.2 to 54.3.

Following the talk of negative rates, the stats were not bad enough to force a move by the BoE.

A reintroduction of containment measures could adversely affect the path of the economic recovery, however.

On the Brexit front, failing hopes of a trade agreement between the EU and Britain also weighed.

In the week, the Pound slid by 1.32% to $1.2746, reversing a 0.95% gain from the previous week.

The FTSE100 ended the week down by 2.74%, following a 0.42% decline from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

Key stats included consumer and business confidence figures and prelim private sector PMIs for September.

It was a mixed bag on the data front.

Eurozone and German consumer confidence saw marginal improvements but not enough to impress. From Germany, business confidence also improved, while coming up short of forecasts.

Key in the week, however, was the prelim PMIs.

While manufacturing sector activity picked up in September, service sector activity slumped, raising concerns over the economic recovery.

France, Germany, and the Eurozone saw a contraction in the services sector. Partially offset by a pickup in the manufacturing sector activity, private sector activity stalled at the end of the quarter.

The Eurozone’s services PMI fell from 50.5 to 47.6, with the composite PMI declining from 51.9 to 50.1. On the positive, was a rise in the manufacturing PMI from 51.7 to 53.7.

While the stats provided direction, a spike in new COVID-19 cases in Europe weighed heavily on the EUR. Concerns over the possible need to reintroduce lockdown measures drove demand for the safety of the Greenback.

For the week, the EUR slid by 1.77% to $1.1631. In the week prior, the EUR had fallen by 0.05% to $1.1840.

For the European major indexes, it was a particularly bearish week. The CAC40 and DAX30 slid by 4.99% and by 4.93% respectively, with the EuroStoxx600 falling by 3.60%.

For the Loonie

It was a particularly quiet week on the economic calendar.

Economic data was limited to August house price figures that had a muted impact on the Loonie.

Concerns over the global economic recovery amidst the spike in new COVID-19 cases weighed on crude oil prices and the Loonie.

The Loonie fell by 1.38% to end the week at C$1.3386. In the week prior, the Loonie had fallen by 0.19%.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 25th September, the Aussie Dollar slid by 3.54% to $0.7031. The Kiwi Dollar wasn’t far behind, ending the week down by 3.15% to $0.6546

For the Aussie Dollar

It was another quiet week for the Aussie Dollar on the economic calendar.

There were no material stats from Australia to provide the Aussie Dollar with direction.

The lack of stats left market sentiment towards COVID-19 and the global economic recovery to sink the Aussie.

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included August trade figures that failed to support the Kiwi Dollar late in the week.

In August, New Zealand’s trade balance slid from a NZ$447m surplus to a NZ$353m deficit. Year-on-year, however, the trade surplus widened from NZ$50m to NZ$1,340m.

A sharp fall in imports and a rise in Kiwi fruit and aircraft drove the trade surplus to its largest since 2014.

On the monetary policy front, the RBNZ was also in action mid-week. Following the talk of negative rates in the month prior, the RBNZ continued to promise further support if needed. In the RBNZ Statement, the RBNZ stated that additional support could come in the form of Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

September’s private sector PMIs were in focus mid-week.

While the numbers were on the positive side, the private sector continued to contract at a marked pace in September. The Manufacturing PMI rose from 47.2 to 47.3, with the Services PMI rising from 45.0 to 45.6.

According to the prelim survey, new orders fell at a weaker pace, while new export orders fell at a stronger pace.

The pace of job shedding eased across the private sector, while the backlogs of work rose at a stronger pace.

Optimism improved across the private sector in spite of the stronger decline in new export orders.

September’s PMIs reaffirmed the BoJ’s statement last week that the Japanese economy was in a serious condition.

The Japanese Yen fell by 0.97% to ¥105.58 against the U.S Dollar. In the week prior, the Yen had risen by 1.50%.

Out of China

It was a particularly quiet week on the economic data front.

There were no material stats to provide the Yuan direction in the week.

On the monetary policy front, the PBoC was in action, however. In line with forward guidance from the summer and market expectations, the PBoC left loan prime rates unchanged.

On the geopolitical front, tensions between the U.S and China continued to hit the global financial markets.

Early in the week, Trump continued to blame China for the COVID-19 pandemic at the UN National Assembly. The war of words continued in the week.

In the week ending 25th September, the Chinese Yuan fell by 0.81% to CNY6.8238. In the week prior, the Yuan had risen by 0.95%.

The CSI300 and Hang Seng fell by 3.53% and by 4.99% respectively.

EUR and The GBP Against The USD and Covid

On September 16, on Fed Minutes, Chairman Jerome Powell made it clear that success in the fight against coronavirus will be the determining factor recovery of the US and World economy. The announced figures in the FOMC materials on the economic forecasts of the FRB presidents and members of the FOMC were more positive than in July, the dollar after the release of the data began to gain rapidly, despite the drop in American indices.

The Federal Reserve has taken what Mr. Powell called “drastic” steps in response, including cutting interest rates to near-zero and buying about $ 2 trillion in US government debt. The bank also said last month that it was loosening its approach to managing inflation, targeting higher price increases to try to spur growth and maintain employment.

The chart of the active Covid-19 cases in the United States at the moment looks like this:

New daily cases of Covid-19 infections in the United States

From the charts above it is clear that so far the United States has managed to keep the number of infected at the level of 2.5 million, which makes it possible to clearly assess the recovery, taking into account the priorities of the Fed – keeping inflation at 2% and reducing unemployment, the total number of infected at a certain level, despite the daytime infections.

Further growth of the US dollar against other currencies was also served by the announcements of the central bank. The Bank of England in the minutes of the meeting reported that the interest rate would remain at a historically low level of 0.1%, adding that the outlook for the economy remains “unusually uncertain”. Adding fuel to the fire Prime Minister Boris Johnson stated at the beginning of the week, and yesterday, September 22, announced the introduction of additional restrictions, which were considered by public as a return of lockdowns and negatively affected the GBP.

Europe has been reporting for a month about the introduction of additional restrictive ones because of fears of a second wave, so Hungary became the first country in the bloc. Great Britain, in turn, is listing more European states to the list of “restricted countries to travel”, while the issue of trade relations with the EU after Brexit remains unresolved.

Thus, the FTSE100 Index fell 4.21% from September 16 to September 21, with the largest losses falling on the shares of the owners of airlines, hotels, restaurants and pubs traded on the London Stock Exchange.

The FTSE was able to recover today and continue yesterday’s gains on the UK Manufacturing and Services Index (PMI) publishing fund.

Chart from TradingView

Despite the growth of the FTSE100 index of the London Stock Exchange, the British pound remains weak against the US dollar. Most likely bearish trend, against the background of the introduction of restrictions and closing borders. As of this writing, GBP/USD on Overbit is trading just below the 0.618 Fibonacci retracement of the previous support level at 1.27130, the decline is likely to continue to the 1.26570 support level, where a slight recovery is expected for the pound, and a possible further fall to the 1.25200 mark towards the Fibonacci 0.786 level.

GBP/USD Quote on Overbit

Since the successful projection of the economic recovery and the success in the fight against coronavirus are accompanied, Europe is about to take strict measures to hold the virus spread as states are suffering from Wave 2. Peak values ​​for infected COVID19 were recorded in August in Albania, Bulgaria, Czech Republic, Montenegro. France, Holland, Spain and Poland recorded peaks in those infected per day. EU Central Bank President Christine Lagarde also noted that economic recovery remains unclear and uneven, and additional stimulus will be required to support the economy.

German DAX as main indices of the EU’s economic projection fell sharply yesterday after new high numbers of infected reported, though was able to recover today after the publication of Manufacturing Indexes (PMI) of the EU, Germany, France and Spain. expected PMI data from the US to be released later today.

Chart from TradingView

The euro against the US dollar, at the time of this writing, is trading above an important support level at 1.17120, at 1.17165. Most likely EUR / USD will test 1.17630, where dynamic and static resistance is set, as well as EMA20, and continue to fall.

EUR/USD quotes on Overbit

The chart shows an interesting pattern, discovered by crypto traders back in 2018, called the “Bart Simpson” pattern, due to the similarity of the price movement with a hair-style of the character. In fact, this pattern shows the fatigue of the bulls, despite the drop in the quote currency. It should be noted that the President of the EU Central Bank herself has repeatedly said that one should closely monitor the rapid growth of the Euro, because in the context of economic recovery and the resumption of business and tourism, the expensive Euro may negatively affect the inertia of economic recovery.

Rolls-Royce to Raise 2.5 Billion Pounds to Strengthen Balance Sheet as COVID-19 Hurt

Rolls-Royce Holding Plc, one of the world’s leading producers of aero engines for large civil aircraft and business jets, said that it was exploring options to raise up to 2.5 billion pounds ($3.2 billion) to enhance balance sheet resilience and strength.

The second-largest provider of defence aero engines globally said it was considering a variety of structures including new debt issuance, a rights issue and potentially other forms of equity issuance.

No final decisions have been taken as to whether or when to proceed with any of these options or as to the precise amount that may be raised, the company said.

Rolls-Royce’s shares closed 5.13% lower at GBX 180.15 on Friday; the stock is down over 70% so far this year.

Rolls-Royce stock forecast

Ten analysts forecast the average price in 12 months at GBX 295.71 with a high forecast of GBX 498.66 and a low forecast of GBX 80.92. The average price target represents a 64.15% increase from the last price of GBX 180.15. All those ten equity analysts, three rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of GBX 336 with a high of GBX 677 under a bull-case scenario and GBX 130 under the worst-case scenario. Berenberg raised the stock rating to “Buy” from “Hold” but lowered their target price forecast to GBX 270 from GBX 890.

Other equity analysts also recently updated their stock outlook. Credit Suisse cut their target price to GBX 200 from GBX 210; JP Morgan cuts the target price to GBX 80 from GBX 90; Jefferies cuts price target to GBX 500 from GBX 700; Citigroup cuts price target to GBX 564 from GBX 960 and UBS cuts target price to GBX 265 from GBX 328.

Analyst views

“Rolls-Royce has underperformed the peer group YTD and appears to trade on a single-digit P/E multiple in 2022 – much lower than major peers. There are fundamental reasons for this: high exposure to long-haul traffic and high operating leverage mean there is greater earnings and cash flow volatility in the near term,” said Andrew Humphrey, equity analyst at Morgan Stanley.

“Cash outflows of £4 billion in 2020 and around £500 million in 2021 will lead to higher leverage, and we, therefore, believe Rolls-Royce will need to address balance sheet structure to regain an investment-grade credit rating,” Humphrey added.

Upside and Downside Risks

Upside: 1) Faster recovery in widebody traffic. 2) Trent 1000 in-service issues have been demonstrably resolved. 3) Cash targets are met and cash flow quality improved. 4) Additional orders restore the market’s confidence in widebody prospects, highlighted by Morgan Stanley.

Downside: 1) Accelerated retirements of mid-life Trent-powered widebody aircraft. 2) Further cost overruns on Trent 1000. 3) Change to mid-term cash guidance.

The Week Ahead – Private Sector PMIs, Powell, Geopolitics, and COVID-19 in Focus

On the Macro

It’s a particularly quiet week ahead on the economic calendar, with just 32 stats in focus in the week ending 25th September. In the week prior, 69 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

Key stats include prelim private sector PMI numbers for September on Wednesday.

Expect the services PMI to have the greatest impact ahead of the all-important weekly jobless claims on Thursday.

Wrapping up the week, durable and core durable goods orders for August will also influence.

For the markets, it is all about momentum. Any weak numbers will test the demand for riskier assets.

On the monetary policy front, FED Chair Powell is also back in action, giving testimony on Capitol Hill. Following last week’s FOMC press conference, however, will there be any more surprises?

The Dollar Spot Index ended the week down by 0.44% to 92.926.

For the EUR:

It’s a busy week ahead on the economic data front.

In a quiet start to the week, Eurozone flash consumer confidence figures are due out on Tuesday. The EUR will likely respond to the numbers ahead of a busy Wednesday.

Consumer confidence and spending remain key to any economic recovery across the Eurozone. Any weak numbers would test support for the EUR.

The focus will then shift to the busy Wednesday.

September’s prelim private sector PMIs for France, Germany, and the Eurozone are due out. Alongside the figures, Spanish GDP and German consumer confidence figures are also in focus on Wednesday.

The focus will then shift to September’s Ifo Business Climate and sub-index figures due out on Thursday.

While we can expect the private sector PMIs to be the key drivers, both business and consumer confidence will need to improve.

Concerns over economic speed bumps will raise EUR sensitivity to the stats in the week.

On the monetary policy front, ECB President Lagarde is due to speak on Monday. Expect any references to inflation or exchange rates and the economic outlook to influence.

The EUR/USD ended the week down by 0.05% to $1.1840.

For the Pound:

It’s a quieter week ahead on the economic calendar. September’s prelim private sector PMIs, due out on Wednesday, will be the key driver.

Following last week’s BoE forward guidance and chatter on Brexit, the Pound will be sensitive to the numbers.

CBI Industrial Trend Orders are also due out but will likely have a muted impact, barring dire numbers.

On the monetary policy front, BoE Governor Bailey is scheduled to speak on Thursday. Any further chatter on negative rates and a gloomy economic outlook would weigh on the Pound.

The GBP/USD ended the week down by 0.95% to $1.2917.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

House price figures for August are due out that will likely have a muted impact on the Loonie.

Expect the private sector PMIs from the Eurozone and the U.S and market risk sentiment to be key drivers.

Geopolitics and COVID-19 will influence market risk sentiment in the week.

The Loonie ended the week down by 0.19% to C$1.3204 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

That leaves the Aussie in the hands of geopolitics and the global economic outlook influenced by the PMIs.

The Aussie Dollar ended the week up by 0.07% to $0.7289.

For the Kiwi Dollar:

It’s a relatively quiet week ahead on the economic calendar but an important one for the Kiwi Dollar.

Key stats include August trade figures due out on Thursday. We’ve seen plenty of sensitivity to China numbers of late, so expect the devil to be in the details.

Earlier in the week, however, is the RBNZ monetary policy decision on Wednesday. There had been the talk of negative rates. Will there be action or just some more chatter? Economic indicators have yet to impress despite all of the support.

The Kiwi Dollar ended the week up by 1.40% to $0.6759.

For the Japanese Yen:

It is a quiet week ahead on the economic calendar.

Prelim private sector PMI numbers for September will be in focus mid-week. Other than that, there are no stats to consider, leaving the Yen in the hands of geopolitics and COVID-19 news.

On the monetary policy front, BoJ monetary policy meeting minutes will likely have a muted impact. The minutes are dated following last week’s monetary policy decision.

The Japanese Yen ended the week up by 1.50% to ¥104.57 against the U.S Dollar.

Out of China

It’s a particularly quiet week ahead on the economic data front.

There are no material stats due out of China, leaving geopolitics in focus in the week.

On the monetary policy front, the PBoC is in action on Monday. We don’t expect any further cuts in Loan Prime Rates, however. PBoC forward guidance and recent economic data support a hold.

The Chinese Yuan ended the week up 0.95% to CNY6.7692 against the U.S Dollar.

Geo-Politics

UK Politics

The Pound found much-needed support last week. Brexit will remain a key driver in the week ahead, however. We have the House of Lords vote on the Internal Market Bill that could throw Brexit negotiations into chaos. Last week, the British PM attempted to soften the impact of the internal market bill. An amendment to the bill was made to prevent ministers from using the bill to override the Brexit Withdrawal Agreement without a parliamentary vote.

It will get interesting as, while this may have placated some of Johnson’s critics, it may not satisfy the EU…

All in all, it spells for a choppy week ahead for the Pound.

U.S – China

Last week, Trump hit TikTok and WeChat. From the weekend, news hit the wires of Beijing taking retaliatory steps in response.

China issued a warning stating that if the U.S insists on going its own way, China would take the necessary steps to protect the rights and interests of Chinese firms.

We can expect more in the week ahead, particularly with Trump trailing Biden in the polls…

U.S Politics

Presidential Election fever should start to pick up and begin to have a greater influence on the global financial markets.

Trump has yet to claw back the deficit that Biden has enjoyed since COVID-19 reached U.S shores.

Expect Trump’s distraction tactics to draw plenty of attention.

The Weekly Wrap – Central Banks, COVID-19, and Geopolitics Tested the Markets

The Stats

It was a busier week on the economic calendar, in the week ending 18th September.

A total of 69 stats were monitored, following 41 stats from the week prior.

Of the 69 stats, 39 came in ahead forecasts, with 19 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 31 of the stats also reflected an upward trend from previous figures. Of the remaining 38, 32 stats reflected a deterioration from previous.

For the Greenback, it was back into the red, after 2 consecutive weeks in the green. In the week ending 18th September, the Dollar Spot Index fell by 0.44% to 92.926. In the week prior the Index had risen by 0.66% to 93.333.

Central bank chatter ultimately left the Dollar on the back foot as the FED delivered a more dovish than expected set of projections.

Out of the U.S

It was a busier week on the economic data front.

Early in the week, key stats included August industrial production, retail sales, and NY Empire State Manufacturing numbers for September.

It was a mixed bag for the Dollar, on the data front.

While the September manufacturing sector activity picked up in New York State, retail sales and industrial production disappointed.

In August, core retail sales rose by just 0.7%, following a 1.3% increase in July. Economists had forecast a 0.9% rise.

Industrial production rose by just 0.4%, following a 3% increase in July. The stats supported the view that the economic recovery had lost some of its vigor.

On Wednesday, however, it was the FOMC monetary policy decision and economic and interest rate projections that delivered the blow.

The FOMC projected that interest rates would be close to zero through to 2023, delivering a pessimistic outlook on the economic recovery.

A much-hoped-for V-shaped economic recovery would certainly not justify close to zero rates for such a length of time…

In the 2nd half of the week, the weekly jobless claims and Philly FED manufacturing numbers also failed to impress.

While claims eased back from 893k in the previous week to sit at 860k in the week ending 11th September, economists had been more hopeful.

Manufacturing sector activity also slowed marginally in Philly, which was an added negative on the day.

At the end of the week, prelim September consumer sentiment figures provided some comfort. The Michigan Consumer Sentiment Index rose from 74.1 to 78.9. While up in the month, however, sentiment remained well below pre-pandemic levels and a current year high 101.0.

In the equity markets, the NASDAQ and S&P500 fell by 0.56% and by 0.64% respectively. The Dow ended the week down by just 0.03%.

Out of the UK

It was another busy week on the economic calendar.

Employment and inflation figures drew attention in the 1st half of the week. It was a mixed set of numbers, however.

Claimant counts rose by 73.7k in August. While coming in below a forecasted 100k rise, it was up from a 69.9k rise in July.

The unemployment rate ticked up from 3.9% to 4.1% in July, with the claimant counts suggesting a further uptick ahead. For UK labor market conditions, an end to the and likely surge in unemployment remains a key risk to the Pound… With the government having to introduce containment measures, however, there are hopes of an extension to the scheme.

Inflation came in ahead of forecasts though also painted a grim picture. The annual rate of inflation softened from 1.0% to 0.2%, with consumer prices falling by 0.4% in August. In July consumer prices had risen by 0.4%.

On Thursday, the focus then shifted to the BoE and the MPC’s September monetary policy decision. A dovish monetary policy report and the chatter of negative rates sank the Pound on the day.

Wrapping things up on Friday were retail sales figures, which continued to rise in August. The monthly increase was well below July numbers, however, placing further question markets over the pace of the economic recovery.

In August, retail sales increased by 0.8%, month-on-month, following a 3.7% jump in July. Economists had forecast a 0.7% increase.

Away from the economic calendar, the Pound had found much-needed support after last week’s tumble. Resistance against Boris Johnson’s Internal Market Bill provided support in spite of the bill making it through the House of Commons.

In the week, the Pound rose by 0.95% to $1.2917. In the week prior, the Pound had tumbled by 3.64% to $1.2796

The FTSE100 ended the week down by 0.42%, following a 4.02% rally from the previous week.

Out of the Eurozone

It was also a busy week on the economic data front.

Key stats included industrial production and trade figures for the Eurozone and economic sentiment figures for Germany and the Eurozone.

The stats were skewed to the positive for the EUR.

Industrial production saw another solid rise in July, with the Eurozone’s trade surplus widening.

More importantly, however, was a pickup in economic sentiment in September.

Other stats included finalized inflation figures and wage growth for the Eurozone. The stats had a muted impact on the EUR, however.

For the week, the EUR fell by 0.05% to $1.1840. In the week prior, the EUR had risen by 0.07% to $1.1846.

For the European major indexes, it was a mixed week. The CAC40 and DAX30 fell by 1.11% and by 0.66% respectively, while the EuroStoxx600 rose by 0.22%.

For the Loonie

It was a relatively quiet week on the economic calendar.

Key stats included August inflation and July retail sales figures.

It was a mixed bag on the day front. While there was a pickup in core inflationary pressures in August, core consumer prices stalled in August. Consumer prices fell unexpectedly in the month, adding pressure on the Loonie.

At the end of the week, retail sales also failed to impress. In July, core retail sales fell by 0.4%, with retail sales rising by just 0.6%. In June, core retail sales had surged by 15.5% and retail sales by 22.7%.

The Loonie fell by 0.19% to end the week at C$1.3204. In the week prior, the Loonie had fallen by 0.90%.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 18th September, the Aussie Dollar rose by 0.07% to $0.7289, with the Kiwi Dollar rallying by 1.40% to $0.6759.

For the Aussie Dollar

It was another quiet week for the Aussie Dollar on the economic calendar.

Key stats including August employment figures that delivered the Aussie much-needed support.

Full-employment rose by 36.2k, with employment jumping by another 111.0k in August. Improving employment conditions is key for the RBA’s hope of a consumption-driven economic recovery.

On the monetary policy front, the RBA minutes early in the week failed to deliver the talk of further support, supporting a closeout at $0.73 levels on the day.

The risk-off sentiment at the end of the week left the Aussie Dollar flat, however.

For the Kiwi Dollar

It was also a quieter week on the economic calendar.

Key stats included 3rd quarter consumer sentiment figures and 2nd quarter GDP numbers.

It was a mixed set of numbers, in spite of GDP numbers coming in ahead of forecasts.

Consumer sentiment took a hit in the 3rd quarter, with the Westpac consumer sentiment index falling from 97.2 to 95.1.

In the 2nd quarter, the New Zealand economy contracted by a record 12.2%. Economists forecasted a contraction of 12.8%. In the 1st quarter, the economy had contracted by 1.4%.

In spite of the negative numbers, the Kiwi managed to claw back some of its recent losses in response to the FED’s projections.

For the Japanese Yen

It was another busy week on the economic calendar.

Key stats included August trade and inflation figures, which were skewed to the negative.

While Japan’s trade surplus unexpectedly widened from ¥10.9bn to ¥248.3bn, it was a larger slide in imports that cause the widening. Exports slid by 14.8%, with imports tumbling by 20.8%, delivering a grim view on trade terms.

At the end of the week inflation figures were also of little comfort. The annual rate of core inflation was down 0.4% after having stalled in July.

On the monetary policy front, the BoJ left policy unchanged in spite of some quite dire indicators out of Japan of late.

The Bank did state, however, that the Japanese economy was in a serious condition.

The Japanese Yen rose by 1.50% to ¥104.57 against the U.S Dollar. In the week prior, the Yen had risen by 0.08%.

Out of China

It was another relatively busy week on the economic data front.

Key stats included August’s industrial production, retail sales and unemployment figures.

The stats were skewed to the positive, supporting riskier assets before the FED’s fueled pull back.

Retail sales rose by 0.5%, partially reversing a 1.1% slide from July. Industrial production jumped by 5.6%, year-on-year, picking up from a 4.8% rise in July.

Supporting Beijing’s call for a home fueled economic recovery, the unemployment rate slipped from 5.7% to 5.6%.

In the week ending 18th September, the Chinese Yuan rose by 0.95% to CN6.7692. In the week prior, the Yuan had risen by 0.12%.

The CSI300 rose by 2.37%, while the Hang Seng fell by 0.20% to log a 3rd consecutive week in the red.

The Week Ahead – The BoE, BoJ, the FOMC, Economic Data, and Geopolitics in Focus

On the Macro

It’s a particularly busy week ahead on the economic calendar, with 65 stats in focus in the week ending 18th September. In the week prior, 41 stats had been in focus.

For the Dollar:

It’s a busy week ahead on the economic data front.

In the 1st half of the week, September NY Empire State Manufacturing and August industrial production figures are in focus.

The markets will be looking for a continued upward trend to support hopes of further economic recovery.

Mid-week, the market focus will shift attention to August retail sales figures due out on Wednesday. Expect plenty of influence, with consumer spending key to the U.S economic revival.

On Thursday, Philly FED Manufacturing and weekly jobless claims will influence ahead of consumer sentiment figures on Friday.

While we can expect plenty of influence from the stats, the FOMC monetary policy decision on Wednesday will be the main event.

The key area of focus will be the FOMC economic projections and interest rate projections.

We saw the Dollar take a beating following the FED’s announcement of its new monetary policy framework… The projections will need to reflect a low for longer outlook to pin back the Greenback.

The Dollar Spot Index ended the week up by 0.66% to 93.333.

For the EUR:

It’s also a busy week ahead on the economic data front.

In the 1st half of the week, Eurozone industrial production, wage growth, and economic sentiment figures are due out. Germany’s ZEW economic sentiment figures are also due out.

Expect the ZEW economic sentiment figures to be the key driver on Tuesday.

On Wednesday, trade data for the Eurozone are due out. Barring particularly dire numbers, the trade data should have a muted impact on the EUR.

Through the week, finalized August inflation figures for member states and the Eurozone are also due out.

Following sensitivity to the prelim numbers, expect the EUR to be sensitive to any revisions in the week.

The EUR/USD ended the week up by 0.07% to $1.1846.

For the Pound:

It’s a particularly busy week ahead on the economic calendar. In the 1st half of the week, earnings and employment figures are due out. From Tuesday’s stats, expect the unemployment rate and claimant count figures to have the greatest impact.

On Wednesday, August inflation figures are also due out. The Pound will likely be sensitive to any deflationary pressure build ahead of the BoE decision on Thursday.

On Thursday, the BoE is in action. While the markets are expecting policy to remain unchanged, there had been some recent dovish chatter. Expect any dissent to influence the Pound.

The market focus will then shift to August’s retail sales figures due out on Friday.

Following the BoE’s gloomy outlook on the economy, weak numbers would weigh heavily, assuming the BoE stands pat on policy.

The GBP/USD ended the week down by 3.64% to $1.2796.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

Key stats include August inflation figures on Wednesday and July retail sales figures on Friday.

Both sets of numbers will influence.

On the crude oil front, OPEC and the IEA’s monthly reports will also need consideration in the week. Downward pressures have risen as a result of concerns over demand. Any negative chatter from either OPEC or the IEA and expect some pressure on the Loonie.

The Loonie ended the week down by 0.90% to C$1.3179 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead on the economic calendar.

Key stats include 2nd quarter house price figures on Tuesday and August’s employment figures on Thursday.

Expect the employment numbers to have the greatest impact. We have yet to hear of the RBA talk of negative rates. Dire numbers, following the 2nd quarter GDP numbers, could raise the prospects of further easing.

From the RBA, the monetary policy meeting minutes are due out on Tuesday, with the RBA Bulletin on Thursday.

Any talk of further monetary policy support and gloomy sentiment towards the economy would weigh on the Aussie.

The Aussie Dollar ended the week up by 0.03% to $0.7284.

For the Kiwi Dollar:

It’s another quiet week ahead on the economic calendar.

Key stats include 2nd quarter current account figures on Wednesday and 2nd quarter GDP numbers on Thursday.

The markets will be looking at the GDP numbers to get a sense of whether the RBNZ needs to make a near-term move. These are 2nd quarter numbers, however, so we can expect the markets to be forgiving to an extent.

Following the FED’s shift in monetary policy, central banks will need to douse any bullish demand…

The Kiwi Dollar ended the week down by 0.82% to $0.6666.

For the Japanese Yen:

It is a busy week ahead on the economic calendar.

Key stats include August trade data due out on Wednesday and inflation figures on Friday.

The main event, however, is the BoJ’s interest rate decision on Thursday. What’s next for Japan, as the economy struggles to find its feet?

We have heard frequently from the BoJ, stating its willingness to support. Until now, however, there appears little that the BoJ can do to spur growth.

On the political front, the Liberal Democratic Party leadership vote will take place on Monday. The winner of the election will serve out Abe’s remaining term.

The Japanese Yen ended the week up by 0.08% to ¥106.16 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

Key stats include August fixed asset investment, industrial production, and retail sales figures due out on Tuesday.

With little else for the markets to consider in the week, expect industrial production and retail sales to be the key drivers.

Beijing is looking from within for an economic rebound, giving retail sales greater influence than usual.

The Chinese Yuan ended the week up 0.12% to CNY6.8344 against the U.S Dollar.

Geo-Politics

UK Politics

The Pound took a beating last week. Expect Brexit to remain a key driver in the week ahead. From last week, news of a free trade agreement with Japan will be Pound positive. Progress with the U.S on a Brexit deal will be needed, however, for the Pound to avoid any further downside.

U.S – China

It’s all in the U.S President’s hands in the week ahead, as Trump continues to rile Beijing.

Beijing agreed to ramp up imports and stick to the phase 1 agreement, which has limited the impact of Trump’s targeting on Chinese companies. A continued focus and attack on Chinese companies may eventually draw a retaliatory response, however.

U.S Politics

And finally, the U.S Stimulus Package that has failed to make it through. Chatter from the weekend suggests that there is little chance of the package being voted in before the Presidential Election.

With unemployment still at exceptionally high levels, expect the markets to be even more sensitive to the retail sales figures.