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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

30 / 10 / 20

LONDON OFFICE

 

British Pound

Reuters: Sterling clung to gains against the euro on Thursday after the European Central Bank held off on any new stimulus, as expected, but amid the return of national lockdowns in Europe the pound fell against the safe-heaven dollar. Versus the euro, the pound was up 0.18% at 90.33 pence per euro by 1520 GMT, having earlier touched its highest level since Sept. 9 at 90.07 pence. The ECB kept its policy unchanged, resisting pressure to introduce fresh stimulus amid a surge of coronavirus cases across Europe, but hinted at providing more support in December. While the rise against the euro was influenced by the ECB meeting, cable dynamics is “much more a function of risk appetite,” said Jeremy Stretch, head of G10 FX Strategy at CIBC. Versus a stronger dollar, the pound was at $1.2915, down 0.5% on the day, after earlier falling to a 10-day low of $1.2901 as risk aversion swept markets this week. With rising infections threatening to overwhelm Europe within weeks, French President Emmanuel Macron and German Chancellor Angela Merkel ordered their countries back into lockdown.

 

In the meantime, Britain’s housing minister, Robert Jenrick, said a second national lockdown in the country is not inevitable. He added that Britain, the country with the largest number of coronavirus deaths in Europe, will do everything it can to avoid a new national lockdown. However, Steven Riley, author of an Imperial College study into the spread of the disease, said more drastic lockdown restrictions should be brought in sooner rather than later in Britain as a new study showed cases in England are doubling every nine days. Positive COVID-19 cases in England rose 23% on the previous week, statistics published by the country’s test and trace scheme showed. With Britain and the European Union having just two months to reach a post-Brexit trade agreement before a status-quo transition period ends on Dec. 31, reports on the negotiations have been a key driver for sterling over the past few months. But analysts said a slowdown in the Brexit-related newsflow this week was supportive for the currency. “The lack of Brexit newsflow this week probably means that UK-EU negotiators are already in the tunnel – a good sign for a deal,” wrote ING strategists in a note to clients, referring to the final stretch of secretive, make-or-break negotiations.

 

US Dollar

Reuters: The dollar firmed on Friday and the euro wallowed near a four-week low against the greenback after the European Central Bank signalled further monetary easing by the end of the year. The euro’s overnight decline helped lift the U.S. dollar near four-week high against a basket of currencies. The ECB kept interest rates steady on Thursday but committed to contain the growing fallout from a second wave of coronavirus infections, saying it would hone its response by its December meeting, as widely expected by the market. “We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting,” ECB President Christine Lagarde told a news conference. “The economy in euro zone is deteriorating at a faster pace than expected, and some view that monetary easing won’t be enough to lift the euro zone, or that it will be too late in December. Such reactions probably pressured the euro to fall,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities, noting that it will be difficult for the single currency to rise in the immediate future. The euro was little changed at $1.1676 in Asia, taking a pause after hitting a four-week low of $1.1650 in U.S. trade overnight.

 

Against the yen, the common currency slightly eased at 122.08 yen. Data on Thursday showed the U.S. economy grew at a record pace for the third quarter and an improving trend in jobless claims, while scars from the coronavirus recession still lingered. U.S. gross domestic product rebounded at a 33.1% annualised rate last quarter, according to an advance estimate on Thursday, the fastest pace since the government started keeping records in 1947. Separately, a report showed 751,000 people in the United States filed for state unemployment benefits in the week ended Oct. 24, compared with 791,000 the previous period. The dollar index rose to a four-week high overnight due to the euro’s decline and U.S. data. It stayed near Thursday’s level at 93.916 and was on track to post its second monthly gains. Still, uncertainty surrounding Tuesday’s U.S. presidential election and coronavirus fears continue to loom over market. Global coronavirus cases rose by over 500,000 for the first time as France and Germany falls back into coronavirus lockdowns next week. The United States also faces with rising cases in 47 states, and patients were overwhelming hospitals across the country. Data due on Friday include euro zone’s third-quarter gross domestic product and October inflation, while the U.S. awaits September personal consumption and expenditures as well as Chicago PMI. The greenback was little changed against the Japanese yen at 104.55 yen, having rallied from a five-week trough overnight as it benefited from a rebound in U.S. treasury yields and broad dollar buying. Sterling changed hands at 1.2927, undermined by a lack of Brexit-related headlines as London and the European Union have just two months to reach a post-Brexit trade agreement. The Aussie changed hands at $0.7031, slightly above a three-month low of $0.7002 marked overnight. Across the Tasman Sea, the kiwi held steady, last fetching 0.6623 per dollar.

SOUTH AFRICA OFFICE

 

South African Rand

Reuters: South Africa's rand steadied on Thursday after losses linked to the shock of a mid-term budget speech that showed still-ballooning debt and a deeper recession. At 1548 GMT, the rand was less than 0.1% weaker at 16.4100 per dollar, having slipped as low as 16.4800 overnight, its worst in a week, over the bad news locally and abroad. France and Germany went back into lockdown on Wednesday, as a massive second wave of novel coronavirus cases threatened to overwhelm Europe, rattling already fragile hopes of a global economic recovery. Locally, the long-anticipated medium-term budget speech by Finance Minister Tito Mboweni on Wednesday disappointed, with investors saying it was short on details about the economic recovery plan. "Finance Minister Mboweni's moment to announce brave and sweeping reforms came and went, and still the country continues towards fiscal collapse, albeit at a lower gear," said economists at ETM Analytics in a note.

 

In addition to freezing the public wage bill for three years, the treasury allocated a 10.5 billion rand ($649.66 million) bailout to state-owned beleaguered airline South African Airways (SAA). Bailouts of state firms are among the biggest risk to the country's credit ratings, which have been on the slide. Analysts at BNP Paribas said the budget speech was not a "game-changer" for local assets. "On balance, it should be viewed as market neutral," said senior economist Jeffrey Schultz. "An additional diversion of state funds towards SAA was probably the most negative element." Stocks extended losses for the fourth consecutive day on Thursday, with global virus worries and the budget also hurting sentiment. The Johannesburg Stock Exchange's All-share index was down 0.79% to finish at 51,897 points after touching a five-month low in intra-day trade, while the Top-40 index was down 0.74% to end the day's trading at 47,576 points. The index representing the top six banks in the country was down 3.03%. The index has lost close to 8% in the last two days. Petrochemicals major Sasol Ltd dropped almost 12%.

 

Global Markets

Reuters: A gauge of Asian shares fell for a third straight session on Friday as jitters over next week’s U.S. presidential election and a shaky global economic outlook enveloped markets. E-Mini futures for S&P500 skidded 1.5%, a signal Wall Street would open in the red later in the day. In early European trade, the pan-region Euro Stoxx 50 futures were down 0.4%, German DAX futures slipped 0.3% while London's FTSE futures were a shade weaker. MSCI's broadest index of Asia-Pacific shares outside of Japan was last down 0.1%, on track to the end the week 1.1% lower after four straight weeks of gains. Still, the index has risen 3.8% in October so far, and analysts expect this broader outperformance to extend further. “For a crisis of this scale, Asian equities have performed remarkably well,” Citi analysts wrote in a note. “Within the region, markets with a higher weighting of technology stocks or where the recovery has become more entrenched have outperformed,” they added. “This solid performance can continue, in our view. Valuations are reasonable for an early stage of a recovery while liquidity is generous. There has also been a perceptible drop in volatility in recent months.”

 

The mood on Friday was less positive, though. Australia's ASX 200 fell 0.5% and New Zealand's benchmark index faltered nearly 1%. Japan's Nikkei slipped 0.85% and was set for its biggest weekly loss in more than two months. Chinese shares, which had started marginally higher, eased too with the blue-chip index off 0.1%. Record numbers of coronavirus cases worldwide and the Nov. 3 U.S. presidential election remained the major focus for investors. On Wednesday, global coronavirus cases rose by over 500,000 for the first time, with France and Germany prepping fresh lockdowns. The falls in Asia occurred despite a solid session on Wall Street overnight, which was helped by a diet of strong quarterly reports from tech giants and data showing the U.S. economy grew at a record annualised pace of 33.1% in the third quarter. “Even with the rebound, U.S. output remains 3.5% below its pre-COVID levels. The path towards recovery is much less clear from here, especially as the number of virus cases grows and there are near-term impediments to a fiscal deal,” wrote ANZ analysts in a note. The European Central Bank committed to further action in December to further lend economic support as European nations grappled with a renewed coronavirus outbreak. Analysts expect an expansion and extension of the ECB’s Pandemic Emergency Purchase Programme, a lower deposit facility rate, and even more generous lending terms for banks in December. The announcement sent the euro sliding to a four-week low of $0.1648 to be last at $1.1679. The dollar was weaker against the Japanese yen at 104.34 while the risk-sensitive Australian dollar rose 0.2% to $0.7043. In commodities, oil picked up after hitting a five-month low on Thursday, with Brent crude futures up 15 cents at $37.80 a barrel and U.S. crude adding 5 cents at $36.22. Gold rose, with spot prices climbing 0.4% to $1,874.06 an ounce.

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