Equities push higher
UK labor data misses
Nikkei 1.88% Dax 2.57%
UST 10Y 0.59
Asia and the EU
GBP UK Labor data
North America Open
USD PPI 8:30
Another strong risk-on session in the markets today with equities up by 75 to 100 basis points in Asian and morning European trade. There was no major news driving markets today except momentum as the S&P neared all-time highs.
On the eco front, the German ZEW came in a little better than expected at 64 vs. 59 expected but the UK labor data missed its mark badly with Claimant Count rising 94K from 10K forecast. While the unemployment rate remained near record lows at 3.9% due to the government’s furlough program, the sharp rise in Claimant counts was the biggest in a decade and underscores the structural fragility of the UK economy in a post COVID world.
With hospitality, one of the bigger sectors of the UK economy threatened by the lack of tourism due to pandemic, the prospects of a rebound look slim. Add to that concern the new frictions caused by Brexit and it is difficult to see how UK prospects going forward will improve.
Cable has been essentially immune to those worries for most of the summer rising on dollar weakness above the 1.3100 figure and even today’s dour data could not halt the bullish bias, but if the eco data from the UK does not improve soon the currency will be the first to feel the pain as the country’s fiscal and monetary position will deteriorate markedly. For now sterling remains impermeable to any bad news, but the market will eventually lose patience especially if demand does not rebound soon and the BoE is forced to consider negative rates as the ultimate form of monetary stimulus.
In North America today the docket is light with only PPI data on deck. Analysts expect a small rebound to positive territory to 0.1% from -0.3% the month prior, but unless the print is well out of consensus it won’t have much impact on trade. For now, all eyes are still on Washington DC as markets await some sort of a compromise on fiscal stimulus with millions of Americans on the verge eviction. The pressure on lawmakers continues to build, but there has been little progress so far. Still, the upward tilt of equities suggests that markets remain convinced that the US government will act to keep economic support in place as the country tries to resume economic activity.