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Sterling flags

Buyers’ remorse

Sterling had a decent week, making a fractional gain on average against the other majors. But it was no thanks to the pound’s poor performances on Thursday and Friday when, in both cases, it took last place. Oddly, investors seem happier to back sterling when the Prime Minister walks out of talks than when he walks back in.

All but one of Friday’s UK ecostats were ahead of forecast. Retail sales increased for a fifth consecutive month, and sales in the third quarter were 17.4% above Q2. The provisional purchasing managers’ indices were less impressive. Although manufacturing was better than expected at 53.3, it was almost a point lower on the month and the services reading was nearly four points shy of forecast at 52.3.

Yet there was no apparent connection between the mediocre PMIs and the pedestrian pound. The data were long gone by the time sterling reached its lows. The sensation was that investors were asking themselves, as the weekend approached, just what they were expecting from the government’s renewed trade negotiations with the EU. Would there actually be a trade agreement? Or would the highly touted “Australia-style” deal turn out to effectively be a no deal?

 

Covid and Congress

The other two current headliners delivered nothing new or startling. In Europe and the United States, Covid-19 infection numbers continued to rise. In Washington, they traded accusations about who was to blame for the lack of progress on a stimulus agreement.

The tragic pandemic discovered another route into the administration, with two members of the vice president’s team testing positive. On the overdue stimulus package, House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin blamed one another for not reaching a compromise. Although the administration is officially optimistic that there will be agreement “in a day or two”, the Republican Senate is unlikely to give its support.

Friday’s ecostats consisted mainly of provisional PMIs. Most of them were lower on the month or below forecast, and a handful came in below the growth/slump dividing line at 50. Top marks went to German manufacturing which scored a 30-month high at 58.0. At the other end of the scale Eurozone services could manage no more than 46.2, a five-month low.

 

Slow start

Today’s agenda could well set the tone for what promises to be an uninspiring week. Economic statistics are few and only one central banker is scheduled to make an appearance.

Trade figures from Australia earlier on showed imports falling 1% in September while exports went up by 3%. The numbers did surprisingly little for the AUD, which is a little lower on average. This morning IFO publishes the results of its German business confidence survey.

US data after lunch cover new home sales for September and the manufacturing indices from the Chicago and Dallas Federal Reserves. Swiss National Bank Chairman Thomas Jordan will be speaking this afternoon about “The importance of good framework conditions for the Swiss financial centre”. New Zealand’s trade figures for September appear tonight.

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