Markets have opened with a risk-off tone this week as currencies such as CAD and GBP trade lower, while the Japanese yen and dollar continue to rally. The most notable developments over the weekend centered on the rising case counts within major economies, forcing leaders to draw up and, in some cases, implement tighter restrictions. This was seen in Ontario, with premier Doug Ford imposing a 28-day lockdown with stricter measures imposed in major cities such as Toronto and Ottawa. Efforts to control an incoming second wave are being reflected in the markets price action this morning as CAD trades lower, but this period of slower and potentially stagnant growth in Q4 on tighter restrictions shouldn’t come as too much of a surprise. The Bank of Canada has repeatedly reiterated this likely outcome when discussing the recuperation phase of the economic recovery, which is starting to play out now. The economic cost of stricter lockdown measures is offset somewhat by the Trudeau administration’s latest fiscal policies, meaning CAD isn’t feeling the full brunt of the lockdown news this morning. However, attention will be paid to the new case count data and how effective these latest measures are in resetting the economy on a path to re-open for a second time. Today, Canada enjoys a federal holiday for Thanksgiving.
The dollar saw yet another break lower on Friday and remains under pressure this morning. The exact cause remains ambiguous, although the main themes in US news flow has been the impending election and ongoing attempts to restart fiscal stimulus talks, now occurring directly between the White House and congressional Democrats. After the White House signalled willingness to a larger package than the $1.6 trillion bill supported by Republican Senate lawmakers but rejected by Democrats, there were no signs of actual progress over the weekend. Democrat House Speaker Nancy Pelosi called the administration’s offers “grossly inadequate” in a letter to her party, while Donald Trump told Fox News that Republicans are “having a hard time with Nancy Pelosi”. Talks are expected to continue throughout this week. The US will enjoy Columbus day today, and no major data will be released. Inflation data will be released tomorrow, followed by Retail Sales on Thursday.
The euro is trading slightly softer this morning against the majority of the G10 basket after rallying to a two-week high against the US dollar during Friday’s late session. Over the weekend, several European Central Bank members stressed the case for further monetary stimulus before the virtual meeting of the IMF-World Bank of today. ECB economist Isabel Schnabel wrote that rising public debt levels don’t threaten central bank independence, while Ignazio Visco stated that the ECB’s loose monetary policy will be needed for some time. In an interview with the Wall Street Journal, ECB’s chief economist Philip Lane discussed why the central bank believes inflation is going to climb next year, and that the impact of the pandemic on GDP will be mostly gone by 2022. In terms of virus developments, the case count in the eurozone continues to surge. French Prime Minister Jean Castex stated this morning that he does not rule out local lockdowns in France given the resurgence of new virus cases, while the Netherlands announced another emergency press conference where Prime Minister Mark Rutte will speak to the public about potential new measures on Tuesday evening. With today being a light day on the eurozone data front, all focus turns to the various ECB speeches throughout the day, with ECB President Christine Lagarde speaking at IMF at 12:00 BST.
Sterling saw a surge late on Friday night, and has maintained its momentum on this week’s open, reaching one-month highs against the US dollar this morning. This has the potential to be a fateful week of sterling, with EU leaders discussing trade talks with the UK at a summit, following weeks (years) of negotiations and a busy weekend of diplomacy for Boris Johnson. The UK Prime Minister spoke to German and French heads of Government, reportedly insisting on EU compromises in the area of fisheries, and has previously threatened to walk away from negotiations if no deal is reached by this week. However, after a recent call with EU Commission President Ursula von der Leyen, Johnson appeared to soften his stance on this issue. This week will see scheduled trade talks resume in Brussels, ahead of Thursday’s EU Summit. The other main theme of this morning’s news for sterling is a new framework for coronavirus restrictions, which is expected to be unveiled this afternoon by Boris Johnson. The system will feature three tiers of restrictions, similar to that successfully implemented by New Zealand in March. Boris Johnson will deliver a statement in Parliament at 15:30 BST, followed by a televised press conference for the public at 18:00.