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Degrees of alert

Teflon pound

Despite the UK data doing nothing to encourage enthusiasm for the UK economy, and even though good news on both political fronts – Covid and Brexit – was absent, the pound had a reasonably satisfactory day on Friday. It was fractionally higher on average and added a third of a euro cent and seven eighths of a US cent.

In a series of leaks over the weekend, Downing Street sketched out its latest plan to control the tragic Covid-19 virus. The United Kingdom will be divided into areas classified as having a very high, high or medium (but not low) level of alert. According to that local classification, various businesses and activities will be forced to close or stop for an initial period of one month. The Prime Minister will reveal today exactly what will be affected.

The Brexit situation is on familiar ground, heading towards another last possible moment, on 15th October, to reach a post-Brexit trade deal with the EU. Britain’s government has gone down to this wire innumerable times in the last four years and it is entirely possible that this self-imposed deadline will be extended too. Investors have recently been remarkably tolerant of both the Covid confusion and the Brexit bind, but their patience with sterling will surely be tested this week.

 

Biden up, dollar down

With three weeks to go until the US election, Democratic contender Joe Biden appears to be widening his lead in the opinion polls. Multiple computer simulations by FiveThirtyEight show him winning the contest in 86 out of 100 times after 40,000 iterations. The safe-haven USD is therefore in less demand.

The Greenback was the weakest performer on Friday, falling by an average of 0.6%. There were no US data to affect it other than wholesale inventories, which grew by 0.4% in August. A three-months-overdue US fiscal stimulus bill is still awaited from Washington. Minneapolis Fed President Neel Kashkari said at the weekend that “it’s so vital that our elected leaders come together to take more action”. Yet there remains a vast chasm between what the House of Representatives says the economy needs and what the White House and Senate are prepared to offer.

Further north, Friday’s Canadian employment data for September were better than expected. Employment increased by 378k and the rate of unemployment fell from 10.2% to 9%. The news was worth a quick quarter of a US cent to the Loonie but it is still down by two fifths of a cent to sterling.

 

Quiet across the Pond

Columbus Day in the United States and Thanksgiving Day in Canada will make for a quiet afternoon. Even before that, the European agenda is far from action-packed as Spain celebrates its National Day. Plenty of time, then, for investors to ponder the British government’s success with Covid and Brexit.

The week’s first ecostat was NZ visitor arrivals in August. They were down by 96.9% from the same month last year, continuing the pattern of the last four months. Japanese machinery orders came next. They increased by 0.2% in August and were down by 15.2% on the year. Switzerland’s federal economic forecasts were hedged with backhanded optimism: “Prospects for 2020 are… less negative than feared in the middle of the year [but] momentum is likely to weaken as time goes on.”

There are no ecostats of any consequence until NZ house prices and UK retail sales (BRC) tonight. The president and vice-president of the European Central Bank will be speaking today, as will Bank of England Governor Andrew Bailey and MPC member Jon Haskel.

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