-->US fiscal stimulus talks progressing but a deal still looks elusive so close to the US elections
USD: The overnight session brings less substantial news on US fiscal discussions but with the following updates - Another meeting takes place between House Speaker Pelosi and Treasury Secretary Mnuchin overnight likely to focus on the well communicated issues noted Tuesday including state and local aid and a Covid liability waiver.
USD: Meanwhile, White House Communications Director Alyssa Farah provides a teaser per Bloomberg reports saying the Trump Administration is committed to getting a stimulus package and that there could be “some movement in the next 48 hours……I think this is the best we’ve felt about it to date…..and the president’s position is we’re willing to go up on the number for PPP loans and the direct payments." At the same time though, there is no pushback on NYT reports from Tuesday that Senate majority leader McConnell is asking the Trump Administration not to support the Pelosi/Mnuchin plan.
USD: As for timing in a "best of case" scenario, Politico provides some guidance by saying that assuming Pelosi and Mnuchin reach a deal by Friday (post the Trump-Biden debate), and draft it this weekend for release Monday then with the House's 72-hour rule, the bill could be voted next week on Wednesday, October 28 at the earliest. The Senate would then need a few days to process this bill - with Senate Majority leader McConnell having to round up Senators back in Washington just days ahead of the US presidential and Congress elections - a highly ambitious undertaking given the timing is so close to the November 3 election and with several Senate races appearing tight, candidates will likely want to campaign into the final days and hours.
Brexit: Inching closer to a trade deal
- GBP: Cable is the top performer globally overnight (up 1.6%), decisively and breaking through 1.3100 with USD weakness and positive Brexit news propelling the upside. It is now confirmed EU chief negotiator Barnier will travel to London today (a positive Brexit signal) for talks as he re-emphasizes optimism on a trade deal, suggesting an agreement is “within reach”. EU is increasingly focused on UK sovereignty and sees room for compromise on the Level Playing Field and fisheries, alongside being ready to talk about legal texts. The UK also responds positively to Barnier’s initiative, indicating that they are studying carefully what has been said and that "David Frost (UK negotiator) will discuss the situation when he speaks to Michel Barnier later today."
Data releases overnight
- GBP: UK headline CPI, targeted by the BoE, rises in September to 0.5% YY from 0.2% in August (Citi 0.4% YY, Consensus 0.6% YY) while core CPI increases to 1.3% YY, in line with consensus (Citi 1.1%, Consensus 1.3%YY). Across the quarter headline CPI has now averaged 0.6% YY compared to BoE expectations in August of 0.2% YY. But Citi analysts still see the bias remains disinflationary over the coming months and expect headline CPI to ease into Q1-2021 before rebounding thereafter.
- CAD: Canadian September headline CPI falls 0.1%MoM in September and the Y/Y reading is up to 0.5% while 2 of 3 core CPI measures unchanged. Citi analysts expect headline CPI to remain below 2% throughout year end but rise back towards target by mid-2021 due to favorable base-effects. The data is also unlikely to impact next week's BoC meeting. However, stable and even rising core CPI means BoC monetary policy is unlikely to become substantially more-accommodative.
- CAD: Canadian retail sales rise 0.4%MoM in August, softer than consensus and Statistics Canada’s preliminary estimate of 1.1% and Citi at 1.0%. Meanwhile, sales excluding autos are up 0.5% while real retail sales rise 0.5%. The headline data are slightly softer than expected, but Citi analysts says this does not change the view of a strong and rapid rebound in goods consumption.
- AUD: Australian retail sales fall again - retail sales fall 1.5% in September from the month before, initial estimates show. This follows a 4% decline in August, reflecting a second-wave outbreak and strict lockdown in Victoria, although the pace of decline does ease versus August.
Data for the remainder of this week
EUR: Euro Area Consumer Confidence, Oct Flash: Forecast: -15, Prior: -13.9 – Citi analysts expect the effects of rising Covid cases and increasing restrictions on people’s social life to start having an impact on sentiment in October, falling back to July levels. Consumer sentiment had not really taken a as major a hit as business confidence but this means the rebound is also going to be less quick.
EUR: Euro area Manufacturing PMI, Oct Flash: Forecast: 54.7, Prior: 53.7; Services PMI, Oct Flash: Forecast: 49.2, Prior: 47.6; Composite PMI, Oct Flash: Forecast: 51.6, Prior: 50.1 – Citi analysts estimate that the euro area flash composite PMI will rebound in October, breaking the negative trend of the past couple of months despite a sharp increase in number of new Covid-19 cases in Europe.
- GBP: Manufacturing PMI, Oct Flash: Forecast: 53.8, Prior (Final): 54.1; Services PMI, Oct Flash Forecast: 52.1, Prior (Final): 56.1 - Citi analysts expect manufacturing PMI to remain well in expansionary territory as new orders continue to pick up and also expect the rate of employment reductions to fall somewhat. But amid a renewed increase in Covid cases in the UK, Citi analysts expect the UK services PMI to fall back though still in expansionary territory overall.
- GBP: Retail Sales, Sep: Forecast: 0.7% MM, 3.8% YY, Prior: 0.8% MM, 2.8% YY; Ex Auto Fuels, Sep Forecast: 0.5% MM, 4.9% YY, Prior: 0.6% MM, 4.3% YY - Soft data points to strong continued retail demand but this is likely to fade later this year.
This is is an extract from the Daily Currency Update, dated October 22, 2020. Please approach a Citigold Relationship Manager if you would like more information.