Morning Report – Friday 14th August

Main Headlines

Top U.S. and Chinese trade officials are expected to recommit to a Phase 1 trade deal during a review on Saturday, even though China’s promised purchases of U.S. exports are far behind schedule. Current and former U.S. government officials and trade experts in both countries say the Phase 1 deal, signed in January after nearly two years of tit-for-tat tariffs and angry rhetoric, is the one area where the world’s two largest economies are still cooperating.

Asian stocks drifted overnight as investors evaluate the stalemate in stimulus talks in America and parsed signs of an economic recovery. Treasury yields firmed near an eight week high and oil headed for a second weekly gain. Shares in South Korea led decliners after daily virus cases there almost doubled. China and Hong Kong were sold off, while stocks fluctuated in Japan and posted modest gains in Australia. Data showed China’s economic recovery continued in July, though retail sales were weak. S&P 500 futures ticked higher after a drop in the benchmark Thursday. The index remains close to a record high. The Nasdaq closed up on low volumes.

GBP

Currency markets have so far shrugged of weak data released this week showing the British economy was among the worst performing nations in the second quarter. Rising hopes of a post-Brexit trade deal before a transition period ends this year and concerns about the US economy have lent support to sterling.

EUR

A key euro zone interbank money market rate is trading below the European Central Bank’s own official rate for the first time in over five months, a sign of the vast amount of cash that has been poured into the system to combat the COVID-19 crisis. The ECB has flooded the system with so much liquidity that Euribor is within a whisker of a record low.

USD

The dollar is drifting higher this morning, helped by strong U.S. jobs data as well as firmer global demand for safe-havens amid concerns about the coronavirus recovery, setting the currency up to potentially snap a seven-week losing streak. Overnight the weekly number of applications for unemployment benefits in the United States dropped below one million for the first time since the start of the pandemic, with 963,000 claims coming in below expectations for 1.1 million. However, around 30 million Americans are out of work and an aid package to keep stimulus flowing in the economy has stalled in Congress.

Main Economic Data/Central Banks/Government (All Times BST)

7:45 a.m.: France CPI
10:00 a.m.: Eurozone Q1 GDP
1:30 p.m.: US Retail Sales
2:15 p.m.: US Capacity Utilisation
2:15 p.m.: US Industrial Output
3:00 p.m. US Business Inventories