Market Update: Pound rallies as Brexit talks resume

Market Update: Pound rallies as Brexit talks resume

26th October 2020

Last Week - Key Takeaways

Brexit: Talks resume between UK and EU

  • The pound strengthened against the US dollar after the EU’s chief negotiator Michel Barnier claimed a free trade deal was within reach if the two sides are prepared to make compromises, and the UK agreed to return to talks;
  • Turning to the economy, spending by UK shoppers beat expectations in September to grow by 4.7% compared to a year previously and 1.5% compared to August.
  • Omnis view: It appears the UK’s threat to walk away worked as it brought both parties back to the negotiating table. Talks seem set to intensify ahead of the end of the transition period on 31st December, but Brexit uncertainty is likely to continue weighing the on the pound in the meantime.

US: Shares fall as talks continue over relief package

  • US shares ended the week lower as politicians struggled to agree on the terms of a further relief package to help the country’s economy recover from the coronavirus pandemic;
  • They made sufficient progress for negotiations to continue past the deadline of Tuesday set by the Democrats, but ‘major policy differences’ remained according to one of President Trump’s senior economic advisers.
  • Omnis view: The chances are slim that the two sides will come to an agreement before the presidential election on 3rd November. The markets would favour the Democrats proposal because it is worth more, although the next round of measures should be announced relatively quickly after the election whoever wins.

Global economy: Business activity slows in UK and Europe

  • According to preliminary figures released by research firm IHS Markit, business activity increased in the US in October despite the rise in coronavirus infections, but it fell in the UK and Europe as lockdown restrictions tightened.
  • Omnis view: Even though activity slowed in the UK, it was still higher than in September. However, activity in Europe dropped compared to September, suggesting the region’s economic recovery from the pandemic is stalling. Attention now turns to what action the European Central Bank takes at its meeting on Thursday.

China: Economic recovery continues in third quarter

  • China’s economy continued its strong rebound in the third quarter as figures released at the start of the week showed it grew by 4.9% compared with a year earlier;
  • There was more good news for the Chinese economy as consumer spending rose by 3.3% in September compared with the same month in 2019.
  • Omnis view: These figures are further evidence of the strength of China’s economic recovery from the pandemic and encouraging for the rest of the world because it was among the first countries to come out of lockdown. The increase in consumer spending is a particularly positive sign as it indicates that people feel comfortable venturing out again.

LOOKING AHEAD - TALKING POINTS

Economic data

  • Thursday- Japanese retail sales in September; US economic growth in the third quarter;
  • Friday- Japanese unemployment rate in September; European economic growth in the third quarter, unemployment rate in September and inflation (the rate at which prices rise) in October.

Central banks

  • Thursday- Interest rate decisions by the Bank of Japan and European Central Bank.

Corporate earnings

  • Some of the biggest US tech companies report third quarter profits this week, including Facebook, Amazon, Apple, Alphabet (parent company of Google) and Microsoft.

 

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.