Euro rallies as October PMIs avoid complete collapse
The euro jumped back above the 1.18 level versus the US dollar this morning, helped by a slightly
better-than-expected composite PMI for October.
Following the sharp increase in COVID-19 cases across the European continent, and the reintroduction of
tighter restrictions in the past few weeks, the market was bracing for a disappointing reading from this morning
business activity PMIs. The services index fell deeper into contractionary territory as expected (46.2 versus
47.0), although the manufacturing index beat consensus, rising to 54.4 – well above the 53.1 that the market
had priced in. While the composite index fell back below the level of 50 that denotes contraction, at 49.4 it
avoided dropping to levels that much of the market had feared that it would.
So far, investors have been largely unphased by the violent increase in virus cases in Europe. This data beat
may well calm nerves further and perhaps dampen expectations for an imminent increase in stimulus from the
European Central Bank, which is undoubtedly a euro positive.
Biden and Trump clash in final TV election debate
Last night’s final TV debate between Biden and Trump was a much more civilised affair than the first one, in no
small part due to the host’s ability to mute microphones. The two candidates clashed over COVID, immigration
and the recent story surrounding Joe Biden’s son Hunter and his alleged ownership of a laptop that is being
investigated by the FBI for connections to money laundering.
While we have seen a minor narrowing in the polls in the past few days, perhaps connected to the Hunter
Biden news, the deficit remains around a commanding 8 points or so. We’ve certainly not seen a dramatic
collapse in the lead such as that witnessed in the days leading up to the 2016 election following the Clinton
Pound set for weekly gains as Brexit talks resume
Sterling edged lower versus the dollar on Thursday, although still remains up for the week amid optimism
surrounding Brexit. Talks between the UK and EU have restarted, a week after Boris Johnson warned over a ‘no
deal’ and stated that talks would not resume unless the EU changed its stance. The current resilience shown in
the pound indicates to us that the market is fairly confident that a deal will be done before mid-November,
thus avoiding a messy ‘no deal’ scenario.
Meanwhile, this morning’s UK retail sales provided sterling with a bit of a boost. Sales remained robust in
September, jumping by 1.5% month-on-month and 4.7% year-on-year, both better than forecast. The real test
will probably come in the October data, which will cover the period of tighter COVID restrictions.