With no tier one UK data releases during the day, the markets focussed on coronavirus developments and global risk conditions again. There was unease over the impact of increased lockdown restrictions in England and Scotland but the Pound held its own before looking for a recovery later in the day, as Chancellor Rishi Sunak announced a new package of business grants worth £4.6bn. Also, renewed speculation that the Bank of England would move to introduce negative interest rates generated selling pressure. Sterling found support just above 1.3550 against the US Dollar, and rose above 1.3600 into the European close while the Euro edged lower to 1.1086. There was some evidence of underlying institutional buying given that a no-deal trade situation had been avoided and a reversal of no-deal hedges. Firmer global risk appetite was also a significant factor underpinning Sterling amid expectations of a global recovery in 2021.
The Pound opens near 1.3650 amid further dollar weakness and solid risk conditions and the Euro opens around 1.1070.
The US ISM manufacturing index strengthened to 60.7 for December from 57.5 the previous month. This was above consensus forecasts of 56.7 and the strongest reading since March 2018. There was strong growth in new orders and production for the month and there was a small increase in employment for the month. Prices increased at a much faster pace on the month and the strongest reading since June 2018.
Exit polls indicated a very tight outcome and counting in Georgia continued during the night, although the Democrats appeared to be on course to win both seats which would give the party effective control of the Senate and generate expectations of a more aggressive fiscal stimulus. Congress will hold a formal joint session on Wednesday to certify Biden’s Presidential election victory with some Republicans expected to vote against. There are also some concerns over mass protests in Washington. There will be the potential for choppy trading later in the day amid US political developments.
The US 10-year bond yield moved above 1.00% to 10-month highs, although the dollar failed to gain significant benefit from higher yields.
German retail sales increased 1.9% for November following a 2.6% gain the previous month with an annual increase of 5.6%. Latest labour market data was also stronger than expected with an unemployment decline of 37,000 for December following a 40,000 decline the previous month and compared with forecasts of a 10,000 increase. Eurozone M3 money supply growth increased to 11.0% in the year to November from 10.5% previously and above forecasts of 10.6%, although private-sector loans growth edged lower to 3.1% from 3.2% previously.
There were also no significant impacts from on-going Eurozone coronavirus concerns as Germany extended its lockdown measures with Euro sentiment holding firm.
As of writing, the Euro currently trades around the 1.2330 mark against its US counterpart.
Posted in Daily Market News on Jan 6 2021