Morning Report – Friday 21st August

Main Headlines

British retail sales rose above their pre-coronavirus level in July, the first full month that shops selling non-essential goods were open since the country went into lockdown in March, official figures showed on Friday. Retail sales volumes rose by a much stronger than expected 3.6% from June and were 1.4% higher than in July 2019, the Office for National Statistics said, representing a sharp recovery from double-digit falls in April and May.

Britain’s public debt went above 2 trillion pounds for the first time in July as the government ramped up public spending to cope with the coronavirus pandemic, official data showed this morning.

German Chancellor Angela Merkel called on European leaders to work together to avoid reviving lockdowns as a resurgence of the coronavirus threatens already battered economies. “Politically, we want to avoid closing borders again at any cost, but that assumes that we act in coordination,” Merkel said Thursday during a visit to Emmanuel Macron at his presidential residence along the Mediterranean coast.

The Trump administration on Thursday declined to acknowledge any plans to meet with China over the Phase 1 trade deal after the commerce ministry in Beijing said bilateral talks would be held “in the coming days” to evaluate the agreement’s progress.

U.S. and European equity futures climbed overnight with Asian stocks as technology shares continued to drive gains, tempering concern over a bumpy economic recovery. Stocks in Hong Kong, China and Japan rose following a fresh Nasdaq 100 record overnight. South Korean stocks pared some of Thursday’s slump as data showed a slide in exports eased. S&P 500 futures and Euro Stoxx 50 contracts edged higher, while the 10-year Treasury yield was steady. The offshore yuan rose to its highest level in seven months.

GBP

Sterling is close to recent highs against the dollar amid broad based weakness in the US currency. Against the euro, the pound is starting to make some headway and could advance further if chances of a Brexit deal continue to improve.

EUR

The euro, which has been the biggest beneficiary of a recent decline in the dollar, will come into focus later today as traders brace for euro zone manufacturing data. The growing consensus is the euro will continue to edge higher because European governments have taken decisive action on stimulus measures to support growth however, the amount of euro longs is causing some concern amongst analysts who expect a technical rebound.

USD

The dollar is on the defensive against most currencies this morning after a rise in U.S. jobless claims and a dip in Treasury yields signalled a continuation of the dollar being sold off after a small bout of profit taking post FOMC. A larger than expected rise in weekly U.S. jobless claims came just one day after Fed officials warned that a recovery in hiring is starting to slow, raising doubts about how quickly the world’s largest economy will bounce back from the coronavirus.

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

7:00 a.m.: UK Retail Sales April
8:30 a.m. German Manufacturing Flash PMI
9:00 a.m. Eurozone Manufacturing Flash PMI
11:00 a.m.: UK CBI Industrial Trends
3:00 p.m.: US Existing Home Sales