Morning Report – Monday 14th September

Main Headlines

A new restriction on gatherings of no more than six people both indoors and outdoors starts in the U.K. on Monday as coronavirus cases rise sharply and a prominent scientist warned of future lockdowns. In the three days through Sunday the U.K. added more than 10,000 new Covid-19 cases, a pace not seen since May. The virus reproduction rate has jumped above the key level of 1.0, risking an exponential rise in infections.

Nvidia will buy SoftBank Group’s chip division Arm for $40 billion in cash and stock. Additionally, Masayoshi Son’s company is reviving talks about privatisation after reaching the chip deal. SoftBank is valued at more than $115 billion. Elsewhere, Gilead is buying Immunomedics for $21 billion in cash. The news drove Asian stocks higher, along with U.S. and European futures. Chinese and South Korean stocks led gains in Asia, while S&P 500 futures rose more than 1%. Treasuries were little changed ahead of this week’s Fed meeting. Gold and crude ticked higher.

After a blazing rally of 34% from this year’s record low against the dollar, Norway’s krone may be running out of momentum. The Scandinavian currency completed a second weekly loss versus both the greenback and euro last week, in step with declines in the price of oil, Norway’s top export. Furthermore, krone gains in recent months were fuelled in part by central bank purchases, which may be scaled back in the near future, reducing support for the currency

GBP

The British pound flirted with a six week low against the dollar overnight on fears about no-deal Brexit. It has lost more than 4% so far this month, the worst among G10 currencies. The pound has been under pressure as the probability increases that Britain will end its post-Brexit transition period with no trade agreement. Hedge funds raised their long bets on the pound to the highest in over five months just before talks between the U.K. and European Union turned sour.

EUR

The ECB is carefully watching the euro and is ready to act if needed, Christine Lagarde said, noting that the common currency’s appreciation is depressing inflation and blunting the impact of stimulus steps. Governing Council member Olli Rehn noted that price pressures have stabilised at a level not in line with the ECB’s goal. “The inflation outlook is a concern,” he said. Goldman Sachs said the remarks reflected “limited concern” and the currency’s long term fair value is about $1.30.

USD

The dollar was firm overnight with focus on the Federal Reserve’s policy announcement on Wednesday. Expectations of further monetary easing by the Fed have been a drag on the dollar. The dollar index has lost more than 4% so far this quarter. The Fed has announced late last month that it has adjusted its policy strategy, noting that it wants inflation to average 2% over time however, some analysts say markets may have gone too far in expecting further Fed stimulus.

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

10:00 a.m.: Euro-Area July Industrial Production
2:30 p.m.: ECB’s Philip Lane speaks at webinar