CFDs sind komplexe Instrumente und umfassen aufgrund der Hebelfinanzierung ein hohes Risiko, schnell Geld zu verlieren. 67 % der Konten von Privatanlegern verzeichnen beim Trading von CFDs bei diesem Anbieter Verluste. Sie sollten überdenken, ob Sie die Funktionsweise von CFDs verstehen und ob Sie sich das hohe Risiko leisten können, Ihr Geld zu verlieren.
Gilts, sterling shrug off Spending Review
Not a lot ultimately to get markets too excited, in fact markets took the Spending Review in their stride. Gilt markets shrugged off the Chancellor’s set-piece despite a massive splurge in borrowing that produced some heady numbers that really we have never seen before in this country – it’s fair to say the bond vigilantes are conspicuous by their absence these days.
The UK is forecast to borrow a total of £394bn this year, which is equivalent to 19% of GDP and a record amount. No mention of the inevitable tax raid that is coming…but it is undoubtedly is coming. The Bank of England has foursquare got the government’s back these days (not quite outright financing but as good as) and the global bond market is so squashed by central banks that these eyewatering borrowing numbers can be shrugged off by the market.
UK 2-year gilts were down at -0.039% and 10-year yields at 0.307%. Yields are actually lower on the day, which is probably due lack of momentum today in the reflation trade (n.b. pro-cyclical equity rotation without reflation has been killer for gold but as per prev. notes the inflation will start to show in CPI prints in US and lead gold higher), and the curve remains negative out to four years with real rates still deeply negative.
GBPUSD moved a little lower to 1.3340 area but bounced on this support and the pair remains well off the day’s lows. US data crossing showing higher-than-expected initial and continuing jobless claims whipped the cross back to 1.3360 at the bottom of the hour before coming down. US durable goods were strong at +1.3% vs 1% expected, with core durable goods at 1.3% vs 0.5% expected.
The package unearths some very substantial near-term problems for the UK economy. The economy will contract by 11.3% this year and growth next year has been slashed to just 5.5% from 8.7% expected in July. Economic output will not return to pre-pandemic levels until the end of 2022. Unemployment will rise to 7.5% in Q2 2021 – it’s always darkest before the dawn. Vaccines emerging in the second half of next year will start to see this trend reverse, it is hoped.
Elsewhere ahead of the US open the Dow is set to open 40-50pts lower at a whisker under 30,000. FTSE 100 also steady at -0.6% just under 6,400.
Chart: GBPUSD not fussed much
ECB: Pandemic focus
With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday.
Market participants are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices.
The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting and the assumptions for growth contained in the ECB’s September look out of step with reality.
Weakness in Friday’s PMIs highlight the concern among businesses, particularly in services. The threat of a double dip recession is real, and Christine Lagarde recently commented that the resurgence of the virus is a clear risk to the economy.
Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December – albeit it may choose to increase PSPP rather than PEPP – for the markets these acronyms won’t matter too much – it’s the size and duration of the liquidity injection that matters, not how it is presented.
Lagarde may drop some hints in the press conference to increasing PSPP/PEPP envelopes in December, but will not over-commit. Moreover, with progress on delivering on the fiscal side slow, the ECB will feel obligated to step up.
To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”
As far as the currency goes (why else are we bothering?), the line in the sand for the central bank was 1.20 on EURUSD – a level that prompted chief economist Philip Lane to comment that „the euro-dollar rate does matter”.
Traders should pay attention to any nod to currency worries from Christine Lagarde – another run at 1.20 looks credible, particularly if there is a Democrat clean sweep in November’s elections as this is seen as a headwind for the dollar and likely positive for the euro due to better trade relations.
Fundamentally it will be more of the same from the ECB with it stressing it is ready to do more and the momentum is with the doves to ease more.
Meanwhile, there are also meetings of the Bank of Japan and Bank of Canada taking place this week.
Sterling down on PM’s no deal noise
Sterling fell sharply on comments from PM Boris Johnson calling for the UK to prepare for a no-deal exit in January and accusing the EU of not negotiating seriously.
Johnson stressed that a Canada-style free trade deal was all the UK ever wanted, but that it had become clear from the EU summit that this was not acceptable to the other side. He said that the EU had abandoned the idea of a free trade deal and that unless the bloc makes fundamental changes to its approach, the UK will go for no deal.
GBPUSD dropped one big figure, sinking from day highs at 1.2960 to test the Wednesday low at 1.28630 area, which has held for now. 100day SMA at 1.2838 below this is yet to be tested.
After dropping hard cable bounced off the support to reclaim the 21-day SMA at 1.2890 and remains well within the September range, but sentiment will remain fragile with risk of pullbacks on negative headlines. Lots of noise for the day traders to latch on to but no trend emerging. Longs may struggle against this backdrop and a retest of the bottom of the range at 1.27 is a distinct possibility in the near term if today’s support cracks.
What it is
A clearly signposted and choreographed set piece, following in the wake of the Oct 15th deadline, which is designed to force the EU to back down. The UK wants to gain the upper hand in the talks and hopes fissures will open up between member states (Germany and France in particular) and that the EU will eventually crack and go for what the UK is offering.
We knew before these statements that the UK and EU will continue to talk and work towards a deal. Boris wants to talk tough and ramp the no deal rhetoric but it’s for the crowds – talks are ongoing.
What it’s not
It’s not entirely bluff – the UK would through gritted teeth accept a no deal because politically Johnson is taking so much flak over the pandemic that he has no room to ‘let the country down’ over Brexit.
The red/blue wall in the north has been hard hit by the pandemic – they would never vote Tory again if Boris backs down now over Brexit. And it’s pointedly not the UK walking away from trade talks – it’s important to lay blame at the feet of the other and Britain’s position has not materially altered.
Status is unchanged – both sides are working towards a deal and continue to do so. Both sides want a trade deal to be able to sell to voters and ‘move on’. Time is tight but a thin or skinny trade deal ought to be accomplished. An informal meeting of heads of state in Berlin scheduled for Nov 16th may be the crunch point.
BoE quick take: negative rates on the table hit cable
Sterling dropped sharply along with gilt yields, with GBPUSD down one big figure to take a 1.28 handle and 2-year gilt yields dropping to -0.1% after the Bank of England delivered a dovish statement which included overt references to introducing negative rates.
It looks like Bailey is prepared to go big and fast if there is an unemployment crisis once the furlough scheme ends. For the time being he is keeping his powder dry.
Whilst the MPC kept rates on hold at 0.1% and the stock of asset purchases at £745bn, it looks like it is on the cusp of delivery further accommodation. The Bank ‘stands ready’ to do more, it said, adding that will not tighten monetary policy until there is ‘clear evidence’ of achieving its 2% inflation target in a sustainable way.
But it was the mention of negative rates that seems to led to sterling being offered.
Bank of England puts negative rates on the table
The bit that did the damage was included right at the bottom (underlines my own):
‘The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates. The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4.
It also set the stage for more QE, with the MPC noting that the Bank ‘stood ready to increase the pace of purchases to ensure the effective transmission of monetary policy’. With the current QE ammo due to run out by the end of the year, the Bank looks likely to expand the asset purchase programme by around £100bn in November.
We can now also start to worry about negative rates being implemented – a lot will depend on the unemployment rate as we head towards Dec with the furlough scheme ending.
On the economy, the Bank thinks the UK economy in Q3 will be 7% below Q4 2019 levels, which is not as bad as previously forecast. Inflation is forecast to remain below 1% until next year.
Chart: Cable breaches near-term trend but tries to find support at 1.29.
Looking to see whether this move reasserts the longer-term downtrend – lots depends on the Brexit chatter taking place in the background.
Moody music around Brexit sends sterling lower
Sterling took a bit of a kicking as the mood music around this week’s Brexit talks took a decided turn for the worse. The EU came out with some pretty stern words for the British government over its internal markets bill. Less Ode to Joy and more Siegfried’s Death and Funeral March.
The EU Commission has come out fighting, saying the bill would, if adopted, represent a serious breach of the withdrawal agreement (perhaps) and of international law (more dubious, since the EU cannot hold any sway or sovereignty over UK domestic markets, laws or affairs after the exit from the EU).
Anyway, the British position (on paper at least) remains resolute. The UK government legal opinion is that it remains a sovereign matter of UK domestic law, which of course, it is, regardless of what the EU may think.
Brexit talks under threat as EU warns UK has ’seriously damaged trust‘
The EC called on Britain to ditch the problem elements of the bill by the end of the month and warned that the UK has ‘seriously damaged trust between the EU and the UK’, adding that ‘it is now up to the UK government to re-establish that trust’.
This is real brinkmanship. It is one of three things: it is either a cynical masterstroke in negotiating a deal. Two, it is a cynical move but a miscalculation on the British side, as it may fatally undermine the good faith basis discussions. Or three, it is simply a genuine good faith step based on the British desire to main the integrity of its own internal market, just as much as the EU insists on maintaining its own single market.
Either way the language and tone coming out of everything today would suggest a material increase in no deal risks – more no doubt to follow later this afternoon.
Pound sinks on heightened no-deal risks
GBPUSD sank to fresh six-week lows under 1.2860 with the road to 1.280 clear after breaching the 50-day line, which had offered the support yesterday. EURGBP surged to its strongest in 6 months above 0.92, boosted as a hawkish-sounding ECB put a firm under the EUR.
The euro was sent spiking against the dollar before easing back a touch after the ECB left rates unchanged and indicate it was all very pleased with itself and doesn’t think it needs to do a lot more. Christine Lagarde seemed far too relaxed about the appreciation in the euro, which helped send the currency back up to 1.19.
All in all she did beat a dovish drum and seems to have got her communication rather muddled, again. But after this spike, a bit of dollar bid came back as risk assets soured following the US open.
FX Strategy: Cable drops after stalled Brexit talks get nowhere
Sterling fell back to session lows with a view to the week lows being tested after Brexit talks seem to have gone nowhere. The two sides are still too far apart. Specifically, the EU wants to agree on fisheries and state aid rules before making progress on anything else. EU demands for a level playing field are non-negotiable if there is to be more than a low-level agreement.
Michel Barnier was not upbeat and whilst reiterating that a deal is possible, he said an agreement seems ‘unlikely’ and is concerned about the state of play. David Frost, his British counterpart, said talks were useful but little progress had been made.
The next round of talks take place the week commencing September 7th. Whilst the market was not positioned for a breakthrough this week, it’s getting closer and closer to the crunch point – the longer we go without a deal the more pressure comes onto the pound.
The two sides are still a long way from agreement on key terms. We should note that Barnier as the EU mouthpiece will always be pessimistic right up to the moment a deal is done. Nevertheless, on certain fundamental principles it looks as though the chasm is too great to bridge.
Grappling with the competing concerns of sovereignty (UK) and integrity of the single market (EU) goes to the very heart of the talks. Both sides need to make philosophical compromises before the practical compromises can follow. This is where I start to become concerned about a big, comprehensive deal being done.
Meanwhile EURUSD has dropped under 1.18 after a weak round of PMIs raised fears about the pace of recovery in the Eurozone and traders are starting to show concern the recent ramp in EUR may be overdone. Net long positioning in EUR has become very stretched and the EURUSD is susceptible to a squeeze lower.
Chart: Weekly GBPUSD – trying to break descending trend line. A close under here opens path back to the roaring 20s. We’ve seen a lot more volatility in GBPUSD this week with larger daily moves than generally seen of late.
Chart: Daily GBPUSD – Competing forces at work. Last week’s MACD bearish crossover still points to lost momentum and near-term weakness despite the throwover this week. Golden cross acted as a bullish confirmation of the thrust higher this week. Bollinger starting to point to break out, with downside in favour following today’s Brexit briefing and generally risk-off tone to the end of the week favouring USD.
European shares stutter after Wall Street’s all time high
US stocks closed at record highs but European stocks remain a lot more subdued, with the FTSE 100 struggling at the open today after suffering a sharp reversal in the latter part of the session yesterday. Bulls did try to wrestle control from bears in the first hour of trading, but it looks like it will be another volatile day and a lot will depend on how Wall Street performs in the first hour or two of the NY session. House speaker Nancy Pelosi said the Democrats could be willing to agree to a scaled-down stimulus package, which has helped soothe risk muscles. Asian shares were mixed and US futures are flat.
Whilst the S&P 500 notched record intra-day and closing highs, the FTSE 100 is tracking close to the lower end of the June range and is –20% YTD. Sterling’s strength has not helped but European equity markets just haven’t matched expectations. The DAX has done better but remains some way off its highs. While we focus on the broad market in the US, the fact is it has been driven largely by a rather narrow group of stocks and the rest of the market has not enjoyed the same bounce. Tech is up 50% for the last 12 months, whilst Energy is down 30 per cent.
The question is whether this is early cycle or the death throes of the last bull market. Either you read this as a sign that the market could go a lot higher as we enter a cyclical bull market with lots of cash sitting on the side lines still to pour into value, or you worry that this is a Fed-fuelled tech bubble with forward earnings multiples looking enormously stretched at around 25x on a forward basis. I would be concerned that volatility will increase as we head into the autumn with the election looming and there is at least a chance of a technical pullback for the S&P 500. And how much more stimulus can you throw at this? The Fed has killed the bond market and lifted the boats – but how much more can it do? If the market tests the Fed again, what is left in the tank?
For the FTSE 100, the near-term downtrend is starting to approach important support levels.
USD can’t catch bid
In FX trading, the US dollar was offered yesterday and was the chief driver of the market, sending the euro to its highest versus the greenback in more than two years. The break above 1.19 for EURUSD leaves bulls in control after two previous attempts failed. EURUSD eased back from these highs today but remains supported above 1.19 with bulls eyeing a recapture of the May 2018 swing high at 1.20.
GBPUSD was a little softer this morning after shooting clear of the 1.32 level yesterday to hit its best level since the election last December. The move clears important technical resistance of the long-term downtrend and opens a path back to 1.35, last year’s peak, with the golden cross (50-day SMA rising through the 200-day SMA) considered a bullish confirmation of the rally. Near term the higher-than-anticipated CPI inflation reading this morning has not been able to lift the pound, although it ought to help quell immediate speculation the Bank of England will resort to negative rates.
Meanwhile the pound remains exposed to significant headline risks this week. Brexit talks have not gotten off to the best start as the EU rejected British proposals for truckers’ access to the continent. I would anticipate that the longer this drags the more we see pressure come back on GBP. FOMC minutes tonight will be watched for any signs the Fed feels the need to lean even harder on rates. For now the dollar can’t seem to catch a bid with the dollar index now barely holding the 92 handle and the last line of defence before a return to the 80s sitting at 91.60 (the 78.6% retrace of the two-year uptrend) now firmly in view.
Oil prices slip ahead of OPEC+ meeting
Crude prices were a little lower this morning ahead of an OPEC+ meeting to review after touching a 5-month high yesterday on improving risk sentiment as US equities rose, whilst the softer dollar is offering ongoing support to commodity markets.
OPEC and allies are likely to stick with 7.7m bpd supply cut – what we don’t know is whether the demand side really picks up into the back end of the year. On that front a lot will depend on the containment and control of the virus in Europe – rising cases raises real risk that hamstrung governments simply revert to a wide lockdown and restrict movement again. Airlines and travel stocks will face a tough time.
Gold was softer after breaking back above $2k in yesterday’s volatile session. Near-term support appears to rest on the 23.6% retracement around $1980. Whilst bulls are still just about in control, their momentum is not what it was and we would prefer to see the next swing clear $2015 for the bullish trend to be fully reasserted. A further corrective move lower should still be considered a real possibility.
Here’s what to expect from this week’s FOMC meeting
The Federal Open Market Committee announces its latest monetary policy decisions and guidance on Wednesday. Blonde Money CEO Helen Thomas takes a look at what the Fed might hope to achieve with its latest meeting.
Catch the latest political and macroeconomic insight from Helen each week on XRay.
Blonde Money ECB and EU Summit Preview
What can we expect from this week’s European Central Bank monetary policy decision? Blonde Money CEO and founder Helen Thomas takes a look at what could be in store for markets on the back of the latest announcements, and why the ECB will be watching the upcoming EU Summit as intently as the markets will.
Get the latest macroeconomic and political insight from Helen every week on XRay.
Risk rolls over in early US trade
Risk appetite has well and truly rolled over. US stocks moved lower in the first hour of trade and continued to leg it south, while oil prices swan dived amid a very messy picture for global markets on Thursday afternoon. Walgreens Boots Alliance shares dragged on the Dow as the stock fell 9% after reporting weaker-than-forecast earnings amid some serious weakness in the UK. The dollar found bid as risk appetite turned south, hurting FX majors like GBPUSD and EURUSD.
Supreme Court rules on Trump tax records
Risk sentiment was a bit shaky anyway but it seemed to take a hit as Donald Trump suffered a defeat at the hands of the Supreme Court – not his favourite institution of late. The Supreme Court ruled Donald Trump’s finances and tax returns are fair game and should be seen by the Grand Jury, but it threw out rulings that allowed 3 Democrat-led Congressional committees to obtain Trump’s financial records.
This ruling relates to alleged hush money to women who have claimed to have had sexual relations with the president – a story Mr Trump said was irrelevant. That may be so, but his tax returns may interest voters. Whilst US legal proceedings are far from my area of expertise, I understand that if only the Grand Jury sees the documents it is very unlikely that they would become public records, which could have had serious repercussions for the election. Meanwhile Treasury Sec Steve Mnuchin was also on the wires, saying the Federal government would not bail out states that had been ‘mis-managed’.
Stocks, commodities lower despite solid US jobs figures
The move lower came despite some decent jobs numbers. Weekly initial jobless claims fell to 1.314m, better than the 1.375m expected and representing a decline of 99k from a week ago. Continuing claims fell to 18.06m, a drop of almost 700k and much better than the 18.9m expected. The previous week’s number was also revised down over half a million.
So, the picture in the US labour market is maybe not quite as bad as feared, but still horrendous. There is clearly a long way to go before getting back to pre-pandemic levels. Moreover, as the number of covid-19 cases rises across most US states, the numbers may well start to improve a slower rate.
At send time indices were at session lows, making new lows for the week – we could see further declines as risk appetite appears to have rolled over today. As of send time the Dow was down over 1.8% to 25,559 at the session low, whilst S&P 500 was down 1.5% at a low of 3,120, making it down for the week.
The dip on Wall Street added to pressure on European equities with the FTSE 100 down over 1.7% to a low at 6,046, taking it negative for the week. Having been bid up on Monday towards the higher end of the recent ranges for little reason we are seeing indices pull back closer to the middle of the June ranges – no conviction trade yet.
Dollar firms against pound, euro in risk-off trade
Meanwhile, sterling eased back as risk appetite soured and Michel Barnier said talks this week confirm that significant divergences remain between the EU and the UK. Sterling pulled back from its highs at the top of the new bullish channel on the news as well as the general risk-off tone but remains in a solid uptrend with GBPUSD ably supported above 1.26. Elsewhere in FX the risk rollover boosted the USD so EURUSD pulled back under 1.13.
WTI (Aug) fell sharply from around $40.50 a low under $39.30 in a very swift and long-awaited reversal – albeit probably a day late given yesterday’s inventory build. Expectations of a slower reopening in a number of US states is a worry for near-term sentiment and I have been calling for a reversal based on the technical set-up, which could see a return to the neckline at $35.