The week ahead:
- US Durable Goods Orders (Tuesday, 12:30pm)
- US Gross Domestic Product (GDP) (Thursday, 12:30pm)
- European Central Bank (ECB) interest rate decision (Thursday, 12:45pm)
Highlights from last week:
- Brexit negotiations resume as deadline looms
- UK inflation rises but still well below target
- US jobless claims fall and candidates clash as election draws closer
The week ahead: Interest rates and US GDP in focus
There are several important releases this week, covering both monetary policy changes and a potential coronavirus bounce-back.
Several developed nations will vote on their respective interest rates, including the ECB (Thursday, 12:45pm), the Bank of Canada (BoC) (Wednesday, 2:00pm) and the Bank of Japan (Thursday, 3:00am).
Interest rates are a crucial tool for central banks seeking to adjust to the impact of Covid-19. There is little chance of any change in interest rates from the ECB, although their accompanying press conference will be interesting given the surge in coronavirus cases across the European Union.
Elsewhere, the BoC has previously stated that interest rates will remain low until inflation is sustainably around its 2% target and while figures released last week showed a slight uptick in this, it is still comfortably below target.
A sizeable gain is expected for US third-quarter GDP this week. Predictions are for a rise of approximately 30%, although this follows a drop of 31.4% in the previous quarter. A strong employment market and retail sales have been significant contributors to this. The release may prove contentious as we move into the final stage of the US election.
Last week recap – Brexit negotiations resume, US Presidential debate heats up
Negotiations between the UK and the EU resumed last week, with both sides recognising time is short.
Chief EU negotiator Michel Barnier re-affirmed that the EU was willing to work “night and day” to reach a deal, and acknowledged several key concerns of the UK, including sovereignty and fishing rights.
The resuming of talks is in contrast to the events of earlier this month, when the UK government claimed that negotiations were “over”, although Downing Street has highlighted that “significant gaps remain between our positions in the most difficult areas”.
Over in the US, President Trump and Democrat challenger Joe Biden clashed in their final debate ahead of November’s election. The primary talking point was the coronavirus pandemic, with Biden refusing to rule out more lockdowns, while Trump supported a re-opening of the US. Another topic included climate policy, particularly the Paris Climate Accord.
Coronavirus has meant that a large portion of US voters are doing so via postal means, with around 45 million already having voted before the debate, and while Biden is currently believed to be leading, there is always the possibility of upset as we move into the final days of the election.
UK inflation grows slightly, retail sales growth continues
Inflation grew by 0.5% in September, falling short of market expectations of 0.6%. Some of this was likely due to the end of the Government’s ‘Eat out to help out’ scheme, which saw prices across the restaurant sector fall.
Another contributing factor was airfare prices, which fell by less than average following the close of the summer season. A large portion of this can be attributed to prices not increasing as much as usual over the summer due to travel restrictions.
Despite the gain of 0.5%, inflation remains far below the Bank of England’s target of 2.0%, which has edged some policymakers towards further stimulus. Speaking on Wednesday, MPC member Gertjan Vlieghe said that the second wave of coronavirus was holding back spending and investment and further stated the case for negative interest rates moving forwards.
Retail sales figures released on Friday saw their fifth consecutive increase, growing by 1.5% between August and September. Grocery spending was a primary driver, while petrol fell as travel during coronavirus remains low. With the tier system now in place and some cities in lockdown, it will be key to see how sales hold up across the next few months.
The pound had a mixed week against the euro, falling to a weekly low on Wednesday. However, sterling swiftly rallied, and ended the week at the highest rate in five days.
At midday on Friday, a conversion of £20,000 into euros via our Currency Service would have purchased €21,868.
US jobless claims fall to lowest level since March
The amount of new Americans filing for unemployment benefits fell to 787,000, coming in lower than predictions of 860,000. The total number receiving jobless aid now stands around 8.4m.
However, the figure of 787,000 still outstrips the record during the 2008 financial crisis, where it peaked around 665,000. This highlights the stresses currently placed on the employment market.
Democrat and Republican parties remain at loggerheads over the details of a US stimulus package. Both sides claim that they wish to pass measures before the election on 3 November although there is still heavy debate over sticking points. If agreed, the package would then need to pass both House and Senate before becoming law.
The pound hit month-highs against the US dollar on Wednesday, before falling back in the latter half of the week.
At midday Friday, a conversion of £20,000 to US dollars via our telephone Currency Service would have purchased $25,914.
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