News & analysis


The loonie closed last week out 0.58% lower as the dollar bounced back towards the end of the week with major economies starting to impose tighter lockdown measures. After six days of recording new cases above the 700 mark, Ontario health officials logged 658 new cases on Sunday. This shows a marked decrease in the number of new cases, bringing them just below the threshold that resulted in the 28-day lockdown measure being introduced. However, the effectiveness of the containment measure is still questionable. Despite Ontario’s initial success, where sustained progress is yet to be seen, Quebec continued to report over 1,000 new cases last week, with markets awaiting health information from over the weekend. On the economic and policy front, news from Ottawa on Friday suggested aspects of Trudeau’s longer-term agenda will be outlined in a budget update by Finance Minister Chrystia Freeland next month according to sources. Meanwhile, today will see the Bank of Canada business outlook released for Q3 at 15:30 BST. The survey will be important to gauge how well credit measures, loan guarantees and wage support measures are propping up business sentiment. Q2’s reading naturally saw the outlook survey indicator fall into negative territory with a reading of -7.0, while the future reading looked bleaker at -35.0. Given the re-opening of the economy, the current situation index is highly likely to return back to positive territory, albeit only mildly, while the future sales reading will prove more interesting. However, the Q3 results are likely to incorporate the imposition of local lockdowns in Quebec and Ontario as they were announced towards the back-end of September.


The dollar found itself broadly supported over the last week as markets focused on the tightening of lockdown conditions in Canada and Europe, prompting risk-off flows into the greenback as the global growth outlook deteriorated yet again. The so-called “V-shaped” recovery is very much off the table as a view for the global economy, with many describing it as a square root shaped recovery. However, the righthand side of the recovery picture has started to become shaky as authorities try to dull the effects of a second wave. In the US, stimulus talks continue to drag out, but over the weekend House Speaker Nancy Pelosi put a formal deadline on when a deal has to be struck by. A bi-partisan agreement now has to be formalised by Tuesday in order for the US economy to receive an additional round of stimulus prior to the November 3rd election. The democrats continue to push for their $2.2trn stimulus package, which has already been passed by the House, while Senate leader Mitch McConnell said a narrower $500bn bill will be voted on in the Senate. The wide gap in the size of the stimulus package doesn’t look conducive towards a deal being struck, especially as Trump now states he would like a larger deal than the Democrats are proposing – a big U-turn from his original proposal of $1.8trn. The dollar is trading on the back foot this morning with no concerning Covid news coming out over the weekend. Both the global outbreak and fiscal stimulus developments will remain in focus for the dollar over the coming days as Pelosi’s deadline draws in.


The euro remained within Friday’s ranges this morning after having weakened as much as 1.20 percentage points against the dollar over the course of the last week. Rising Covid-19 cases throughout the bloc and concerns expressed by several European Central Bank members over the weekend are weighing on the euro. ECB President Christine Lagarde stated that new restrictions being rolled out across the euro area will add uncertainty for companies and families, and said that the impact of the pandemic on the services sector is particularly worrying. The services sector accounts for 75% of jobs in the eurozone, increasing downward risks to an already uncertain outlook. ECB member Gabriel Makhlouf stated he sees no reason to increase stimulus at the moment. Friday’s data included a slight expansion in car registrations in September, the first increase of the year. The results were mixed across the bloc, however, with Spain and France reporting losses while Germany showed increased registrations, signalling that the recovery occurred in European markets where infection rates were lower. With today’s calendar being rather sparse for the eurozone, the focus turns to Thursday’s Business and Consumer Confidence from Germany and France, and Friday’s Purchasing Managers’ Indices from France, Germany and the eurozone.


Sterling is trading higher this morning, after a very eventful end to last week and several additional developments in Brexit over the weekend. On Friday Boris Johnson appeared to say the UK was walking away from trade talks with the EU, although the Prime Minister tried to blame the EU for the impasse in trade talks. Johnson called for “a fundamental change of approach” from the EU, saying that the continent’s chief negotiator Michel Barnier should not come to London for further talks this week if this was not on offer. Sterling volatility was relatively muted as Johnson spoke, and the pound did not suffer any major losses afterwards. This suggests that markets are either sceptical that Friday’s theatrics were indeed a significant step towards no-deal Brexit, or the risk of such an outcome is no longer as concerning to the pound. The truth likely lies somewhere between these extremes. Michel Barnier and David Frost are expected to speak by phone either today or tomorrow to discuss the future of trade talks, or indeed if there will be future formal talks. Elsewhere, the House of Lords will debate the UK Internal Markets Bill today, after five Archbishops representing the constituent nations published an open letter criticising the legislation. Bloomberg is reporting this morning that the UK is willing to water down the controversial bill, citing “people familiar with the matter”, while Cabinet Office Minister Michael Gove will discuss the issue with the EU’s Maros Sefcovic today. Still elsewhere, the ongoing dispute between the Government and local officials in Manchester over Tier 3 lockdown measures in the city will play out today, with the former expected to offer the latter additional funding to help blunt the impact of the new restrictions.