Euro hits six-month high vs pound; US jobless claims worse than feared - as it happened

Graeme Wearden

from on 2020-09-10 16:42 (#57ZF4)

Rolling coverage of the latest economic and financial news, as ECB says the eurozone saw a strong rebound over the summer

Pound at six-month low vs stronger euro
Sterling hit by strong euro and Brexit crisis
Lagarde: Strong rebound, but Covid-19 is a headwind
ECB leaves rates on hold
884,000 initial jobless claims in US last week

5.42pm BST

Time for a recap.

A fresh bout of Brexit jitters has sent the pound sliding this evening, while the euro has marched higher.

GBP taking a hit again https://t.co/XdKH0cVVyA pic.twitter.com/WXwG5N88Uv

So with just over a month to go until Johnson's 15^th October deadline and only three-and-a-half months until the transition period expires, it doesn't appear as though the two sides are nearing an agreement. If anything, they are moving further apart and tensions are rising.

No wonder businesses are starting to worry about Brexit again.

*ECB SAID TO AGREE THERE IS NO NEED TO OVERREACT TO EURO GAINS

FX traders: u got it pic.twitter.com/mfGEMN5ia5

4.52pm BST

After a choppy day's trading, Britain's stock market has closed broadly where it began.

With the pound's weakness providing a cushion for multinational stocks, the FTSE 100 has ended the session 9 points lower at 6,003, a drop of 0.15%.

4.40pm BST

Update, the pound's now at a new six-week low against the US dollar (at $1.285), as well as a six-month low against the euro (1.082).

Traders are noting the EU's firm demand that London must change its internal market bill, and remove parts which violate the Northern Ireland protocol.

3.46pm BST

Ouch. The pound is dropping further into the red, after the European Commission called on London to abandon plans to undermine the Northern Ireland protocol.

Following a meeting in London, the EC says that the measures in the internal market bill have seriously damaged trust" between the two sides...and it's up to the UK side to make amends.

The EU does not accept the argument that the aim of the draft Bill is to protect the Good Friday (Belfast) Agreement. In fact, it is of the view that it does the opposite.

Vice-President Maro efovi called on the UK government to withdraw these measures from the draft Bill in the shortest time possible and in any case by the end of the month. He stated that by putting forward this Bill, the UK has seriously damaged trust between the EU and the UK. It is now up to the UK government to re-establish that trust.

Statement by the European Commission following the extraordinary meeting of the EU-UK Joint Committee https://t.co/fDcxANxblE

3.11pm BST

Dean Turner, economist at UBS Global Wealth Management:

Perhaps the only surprise was the reluctance of President Lagarde to push back on the strength of the euro during the press conference. In our view, further policy easing remains likely before the year is out. This will most likely mean an increase in the ECB's purchase program which should continue to support peripheral spreads.

We expect the dollar weakness to continue to be a feature of the currency markets and look for the EURUSD to move into the 1.20-1.25 range in the first half of next year."

The ECB's admission that the euro's recent strength is not a significant worry will help propel the currency higher, likely prompting even more alarm behind the ECB's closed doors. However, even if Christine Lagarde's every word had been directed at containing the Euro's appreciation, that would have been hopelessly optimistic.

Markets know that there is very little that the ECB can actually do to weaken the currency. Rates as almost as low as they can possibly go and the various asset purchase and lending programs are already sizable. What's more, the euro is strengthening for all the right reasons: improving growth, relatively contained COVID infection rates, and positive developments in the fiscal stimulus region.

The European Central Bank meet today sent the euro soaring against sterling as GBPEUR dipped below the 1.09 handle for the first time since the end of June. Inflation is becoming the chink in otherwise strong European armour, partially bought about by the strength of the euro. Eurozone ministers will look to force inflation higher, to stimulate the economy and create more jobs.

There have already been discussions around the ECB artificially manipulating the value of the Euro, however Christine Lagarde has suggested that there is no need to overreact to euro appreciation. She suggested that they will closely monitor the euro value over the coming months in order to combat their stubborn, stagnant rate of inflation.

3.07pm BST

The pound has now skittered down to its lowest level against the euro since March.

Sterling has lost one and a half euro cents today, a drop of 1.3%, falling to 1.0862 for the first time since the Covid-19 market panic sic months ago.

2.24pm BST

Christine Lagarde hasn't managed to talk down the euro.

Instead, the single currency has hit $1.19 against the US dollar for the first time in over a week, near to the two-year high of $1.20 seen on September 1st.

While we don't target any [euro] level, and I will not comment on any level, we are monitoring carefully the impact of our currency on our medium-term inflation level.

.@lagarde: core inflation declined "as expected" to 0.4% in August due to the German VAT cut and the postponement of the summer sales.
You can't be serious. It was a surprise even to inflation strategists, and the near-term perspectives look terrible.

The old "we don't target FX but it has an impact on our price stability mandate" means nothing if you can't tee up a credible policy option. Hard to simultaneously upgrade forecasts and talk up easing policy further. pic.twitter.com/DzIhkOZ1pc

That's the euro for you on Lagarde we monitor but don't target." Next with @FerroTV pic.twitter.com/o41SSMqg9r

The major risk coming into this press conference was downplaying low inflation and getting hung up on the Euro. Unfortunately, it looks like that is playing out.

2.14pm BST

Just in: A Wall Street bank has finally appointed a female boss.

Citi has announced that Jane Fraser, the head of its consumer banking arm, has been appointed as CEO. She'll replace Michael Corbat, who is retiring in February.

BREAKING: Citi's Jane Fraser will become the first female CEO of a major U.S. bank, as Michael Corbat announces he will retire in February. https://t.co/myvxSOSbOz pic.twitter.com/cgHFzlN7XG

2.01pm BST

This tweet shows how the ECB expects a less severe recession this year (and a slightly smaller recovery in 2021).

ECB President Christine Lagarde introduces the baseline GDP and inflation outlook for the euro area. pic.twitter.com/KI3V38k3ro

2.00pm BST

Back in Frankfurt, Christine Lagarde has been asked whether the ECB's governing council is worried about the strength of the euro (it hit a two-year high last week).

The ECB president replies that policymakers discussed it, but they do not target it -- the Bank's mandate is price stability.

1.55pm BST

Economists, analysts and commentators all agree that today's US jobless claims report is disappointing:

Wrong direction.

Also *U.S. STATE CONTINUING CLAIMS RISE TO 13.4M; EST. 12.9M https://t.co/wOgQCvEtnO

Continuing claims edged up from 13,292,000 for the week ending Aug. 22 to 13,385,000 for the week ending Aug. 29. These data have also eased notably since peaking at 24,912,000 for the week ending May 9, but too many Americans remain unemployed in the U.S. economy overall. pic.twitter.com/O3pJiBLQCv

It's horrible that we're pressing 7 months into this thing and we're still shedding almost 1 million jobs per week...it's insane just how shockingly poorly this was all handled...

Initial weekly jobless claims rise to 884,000, versus 850,000 expected https://t.co/6zWtIMEXBp

Initial #unemployment claims flat at 884k (SA) & +20k to 857k (NSA) in w-e Sep5

> PUA claims (NSA): 839k (+91k)

> Total UI+PUA still 1.7mn (NSA)!

> Continuing claims 13.2mn (NSA) w-e Aug29

> Total claims 30mn

>> Fragile labor market with UI claims *rising* over past month pic.twitter.com/mVdaW0ytJQ

Recognizing it's only one set of data, just-released jobless claims go against the established economic narrative in two ways:

An unfavorable data miss for both initial and continuing claims; and

Data also counter the theme of continued improvements albeit at a moderating rate.

First time jobless claims well above expectations, increasing to 884K from 881K last week. Continuing claims increase to 13.385 million. Not what one wants to observe as the economy operates near 80% capacity.

1.50pm BST

Heads-up: The number of Americans filing new claims for unemployment benefit remained worryingly high last week.

A total of 884,000 people filed new claims for unemployment benefit last week, unchanged on the previous week.

Weekly jobless claims come in higher than expected pic.twitter.com/tV6DqSenJ0

US new jobless claims flat week-on-week at 884,000. Still way above the nadir of the global financial crisis and it's been this way since March -- @AFP

1.45pm BST

Onto price stability...and Christine Lagarde warns that headline inflation will probably remain negative for the next few months.

This is due to subdued price pressures" -- such as the rise in the euro's value and a recent VAT cut in Germany.

1.42pm BST

Christine Lagarde goes on to warn that momentum has recently slowed in the services sector, compared to manufacturing, following a strong rebound earlier in the summer.

The ECB president cautions that increases in coronavirus infection rate over the summer months are a headwind to the short-term outlook.

1.35pm BST

ECB president Christine Lagarde is holding a press conference now, to explain why the bank left interest rates on hold.

Lagardse says the incoming economic data has shown a strong rebound" in the eurozone economy, but activity levels are well below their levels before the pandemic.

#ECB President Lagarde presser:

- Strong rebound in activity, broadly in line with previous expectations
- Activity in mfg continued to improve, services momentum slowed "somewhat" recently
- Strength of recovery remains surrounded by significant uncertainty

1.22pm BST

The pound has now dropped to its lowest level against the euro since late June, down nearly a eurocent at 1.092.

That's due to a combination of Brexit worries (weakening sterling) and the lack of shock action from the ECB (nudging the euro higher).

A boring #ECB policy statement with higher EUR/GBP.$EUR/ $GBP rises 0.8% to 0.9158, the highest since June 29.#Forex #Fx pic.twitter.com/yF2DITxDHp

1.12pm BST

Melissa Davies, chief economist at Redburn, says the ECB faces a particularly difficult task in nursing the eurozone back to health, particularly in the eurozone periphery:

There is no hint of policy change in the ECB's statement today, leaving Lagarde with the unenviable task of juggling questions about euro strength and the Eurozone's most recent negative inflation print for August during the press conference.

The reality is that the ECB has a more difficult job than most central banks in stimulating the economy, with no fully-fledged federal sovereign to coordinate with. National central bank data are showing that core countries, including Germany, are proving able to monetise government spending while periphery central banks cannot. The ECB always has a real problem in trying to stimulate the periphery and, now, in supporting governments to spend.

12.55pm BST

The ECB also says that it's pressing on with its 1.35trn programme to protect the eurozone economy from the Covid-19 crisis.

Today's statement says the pandemic emergency purchase programme (PEPP) should cushion the downward' impact on prices during the pandemic.

These purchases contribute to easing the overall monetary policy stance, thereby helping to offset the downward impact of the pandemic on the projected path of inflation.

ECB: NET PURCHASES WILL CONTINUE AT A MONTHLY PACE OF 20 BILLION, TOGETHER WITH PURCHASES UNDER ADDITIONAL 120 BILLION TEMPORARY ENVELOPE UNTIL END OF YEAR.

ECB STATEMENT CHANGES >> pic.twitter.com/nI3dLZVU57

12.48pm BST

Newsflash: The European Central Bank has left interest rates across the eurozone unchanged, at their current record lows.

This means the headline rate remain at 0.0%.

The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

- ECB Keeps It's Deposit Facility Rate Unchanged As Expected -0.5%
- Keeps Marginal Lending Facility At 0.25%
- Keeps Main Refinancing Rate At 0.00%

12.43pm BST

A sudden burst of selling pressure has pushed the pound lower, as Brexit worries swirl.

Sterling is down nearly half a cent against the US dollar at $1.296, amid reports that London may have already broken the terms of the Brexit divorce deal.

Britain has already breached the withdrawal agreement by tabling the internal market bill, prompting Brussels to plan legal action that could lead to financial and trade sanctions, according to a leaked EU legal opinion.

The European commission believes Boris Johnson's government breached the terms of the treaty just by taking the first steps to pass a new law that would negate key parts of the agreement signed last year.

12.36pm BST

A reminder of why the ECB is worried about inflation:

Heading into the #ECB meeting: #Inflation dropped to -0.2% in August... pic.twitter.com/Kp90SGT6nk

12.11pm BST

As it met today, the European Central Bank can take satisfaction that the recent divergence in German and Italian bond yields has narrowed steadily since the spring.

This spread' widened alarming in April, on fears that the ECB wouldn't help Italy handle the cost of the pandemic. It then narrowed, after officials insisted they were still committed to holding the eurozone together.

The spreads have been closed but the ECB's job is nowhere near done yet. All signs point towards more easing, but today the #ECB will stick to talking the talk before walking the walk with a EUR500bn #QE top-up in December. https://t.co/O3FEnVfsC7

12.07pm BST

Dutch bank ING reckons the ECB's comments about the strength of the euro will be most important today:

THREAD

1/6 - A reminder - here's what we expect from the ECB today. pic.twitter.com/Hz5g9hCJ2Q

3/6 - But the juiciest part of the meeting will be @Lagarde comments on euro exchange rate. @carstenbrzeski reckons the real question is has the stronger $EUR already opened the door for more stimulus?https://t.co/7wxqpJNqg3

4/6 - Expect a modest upside risk to EUR/USD, with the pair moving to or above the 1.1850 level today.https://t.co/xLzhkZ0k6f

6/6 - In the near-term, we expect a rally in rates as we think the odds are skewed towards lower rates around today's meeting.

ENDS.https://t.co/0XlVF8Gffm

11.48am BST

With the pound also up against the US dollar, at $1.3025, shares in London are still down.

The FTSE 100 is currently 60 points lower at 5952, down 1%, having closed at a two-week high yesterday.

11.41am BST

Back in the markets, the euro is holding this morning's gains ahead of the European Central Bank decision (in an hour).

It's up 0.25% against the US dollar now, at $1.1835, on predictions that the ECB will sound an optimistic note about the recovery (despite rising Covid-19 cases)

Reports that ECB officials are upbeat at the Eurozone's economic outlook, gave a boost to #EURUSD, keeping the pair in the fight for the 1.18 handle.

Today is #ECB day and the press conference will be analysed for any clues to #inflation and recovery and its view on the #Euro. pic.twitter.com/C1gmfWoc9P

11.28am BST

City AM has learned that the Bank of England has spent at least 117,000 on making its historic headquarters Covid-19 safe.

The measures, including temperature scans and new office signage, should allow more staff to return to Threadneedle Street following the lockdown.

The Bank of England's biggest outlay was 56,800 spent on altering facilities" between March and June. That included buying thermal imaging cameras to scan people's temperatures at entrances, and screens for catering facilities.

It also spent 18,100 on the sort of signage that has become commonplace during the pandemic. The Bank has put in place circulation routes and separate entry and exit points, among other measures.

Another exclusive! The Bank of England had spent around 120,000 by June making its London HQ as safe as possible

That included spending 14,300 on hand sanitiser. And it spent 16,600 on 14,000 masks, according to an FOI requesthttps://t.co/yhd0nTSvy1

11.17am BST

Chris Beauchamp, Chief Market Analyst at IG, says investor are subdued ahead of the ECB's interest rate decision in 90 minutes.

He doesn't expect new stimulus measures today, but instead a hint that it's coming soon:

European markets are edging lower ahead of the ECB, as the bullish sentiment that was so prevalent yesterday pauses for breath.

Some will be wondering if the correction of the past week has run its course, which would be in line with the scope and duration of pullbacks for the this rally, or whether the upcoming US election, Brexit and a host of concerns about renewed lockdowns and economic weakness will lead to a more sustained drop into October.

Scoop: For the first time in more than two years, the @ECB is expected to include a reference to the exchange rate in today's introductory statement" - here's four things to watch for as the euro's strength raises alarms at the central bank https://t.co/h2CNbTCbsk via @Ft

10.45am BST

With central banks in the spotlight, former UK prime minister Gordon Brown has called for the Bank of England to prioritise job creation.

Brown, who gave the BoE independent control of interest rates after becoming chancellor in 1997, argues that it should target employment as well as inflation - like America's Federal Reserve.

All UK institutions have to make high levels of employment a greater priority,"

Having been the chancellor responsible for the Bank of England Act 22 years ago, I am disappointed that while obligations for employment are included in its statutory objectives, the Bank of England does not place greater emphasis on maximising employment."

10.23am BST

The latest weekly healthcheck on the UK economy shows an increase in people setting up new companies, despite the economic uncertainty.

The Office for National Statistics has also found that a third of employees were working from home, as of the middle of August. IT workers, and scientific and technical staff, were most likely to be based at home, along with education workers (with teachers preparing for the new term).

10.15am BST

Speaking of airlines...the International Air Transport Association has warned that shipping a Covid-19 vaccine around the world will be the industry's biggest ever challenge.

Around 8,000 jumbo jet planes would need to be deployed to get a single dose to 7.8 billion people, IATA warned today.

The International Air Transport Association warned of severe capacity constraints that could hamper efforts to get a vaccine out quickly around the globe. While drugmakers are racing to develop a vaccine and get it approved by regulators, the international aviation group is working with airlines, airports, health bodies and pharmaceutical firms to draft an airlift plan.

IATA's director general, Alexandre de Juniac, said: Safely delivering Covid-19 vaccines will be the mission of the century for the global air cargo industry. But it won't happen without careful advance planning. And the time for that is now. We urge governments to take the lead in facilitating cooperation across the logistics chain so that the facilities, security arrangements and border processes are ready for the mammoth and complex task ahead."

10.09am BST

British Airway's owner IAG has trimmed its flight schedule for the rest of the year, and for next year.

IAG told the City this morning that it is cutting capacity, after seeing a levelling off" in demand since July (following a similar move by Ryanair yesterday).

As a result of the impact of current travel restrictions and quarantine requirements on booking activity, the Group's capacity planning scenario for 2020 has been lowered to minus 63% in terms of available seat kilometres (ASKs) compared to 2019 from minus 59% previously. For 3Q 2020 capacity is expected to decline by 78% compared to 2019 and lower than a decline of 74% in the previous scenario.

For 4Q 2020 capacity is expected to decline by 60% compared to 2019 and compared to a decline of 46% in the previous scenario. For 2021 capacity is expected to decline by 27% compared to 2019, a reduction compared to 24% previously planned.

9.35am BST

European stock markets have now dipped into the red, after one European Central Bank policymaker dampened hopes of fresh stimulus measures today.

Klaas Knot, the head of the Dutch central bank, told the Eurofi magazine that risks to the eurozone's recovery had receded, given economic data over the summer

These developments solidify the confidence in our baseline projection with a more favourable balance-of-risks

However, even if no further setbacks materialize, economic activity will only approach pre-corona levels at the end of 2022."

9.24am BST

Covid-19 has dragged the Lloyd's of London insurance market into the red.

Where pandemic and notifiable diseases are specifically covered in insurance policies, then they will pay, and we've been paying claims on those, but they are typically bought as an extension to a standard policy that requires physical damage to a premises before a claim can be made.

It is that second category that is proving complex around the issue of whether Covid-19 is creating physical damage in the workplace, and that is the issue that is being tested in the High Court and we are very supportive of getting this to an early decision."

9.09am BST

Shares in tabletop wargaming group Games Workshop have soared to a new record high, after enjoying a surge in sales during the pandemic.

This has been driven by healthy growth in our online and trade channels. However, our retail channel is still recovering from the COVID-19 closures earlier in 2020. The longer term impact on the Group as a result of the ongoing pandemic is still unknown.

They're not 11 anymore - many are 30/40-olds who grew up with Games Workshop as kids and now have a tonne of disposable cash to spend (and maybe not so likely to have kids to worry about...?) @GeoffCutmore

8.44am BST

In the City, supermarket chain WM Morrison is the top faller after it posted a 28% tumble in earnings due to the pandemic.

As well as the timing of direct COVID-19 costs/lower business rates, the mix of the very strong first - half sales growth was weighted towards online channels and lower margin categories.

In addition, fuel sales growth was very negative, our cafes were temporarily closed, and we invested in supporting our colleagues, NHS workers and farmers with extra discounts. We also continued to invest in price cuts, and delayed planned productivity initiatives to focus on our response to COVID-19.

This prudent approach reflects some sustained uncertainty around the potential future impact of COVID-19 on both our customers' behaviour and the broader British economy.

8.12am BST

The euro is strengthening a little this morning, suggesting traders don't expect major moves from the ECB today.

It's gained 0.2% to $1.1824, back towards the two-year high of $1.20 seen last week.

The euro has derived some support from the release of a Bloomberg report stating that ECB forecasts are said to show more confidence in the economic outlook. According to the report, some ECB policymakers have become more confident in their forecasts for the region's economic recovery, potentially reducing the need for more monetary stimulus this year.

The updated staff forecasts for growth and inflation though are expected to show only slight changes compared to the June outlook.

While one should never put too much weight on just one inflation reading, the August CPI report was a shocker showing core inflation falling to a new record low of just 0.4%.

8.05am BST

With all eyes on the ECB, European markets have made a thoroughly underwhelming start to the day.

In London, the FTSE 100 index dropped by 9 points at the open, while the German and Spanish markets are flat.

European Opening Bell

Mixed start to the day. ECB later and yet more Brexit BS weighing on the minds of many participants will likely lead to reduced volume in early trade.

STOXX 600 UP 0.1%

DAX FLAT

FTSE 100 DOWN 0.1%

CAC 40 UP 0.1%

IBEX FLAT

8.03am BST

There are 10 reasons for the European Central Bank to take a dovish turn today, says Frederik Ducrozet, senior economist at Swiss bank Pictet.

They include: the record low core inflation seen in the eurozone last month, fears that inflation expectations could fall, signs that the eurozone recovery is faltering, the euro's strength, and global risks such as Brexit and the US election.

Possible menu for today's meeting:
- mention of FX
- hint at faster PEPP purchases
- mention of rate cut as one instrument, markets have understood our reaction function
- tasking the committees https://t.co/uTDInohnZ4

Happy #ECB day! @fwred's dovish top 10 list is your cheatsheet for the day. pic.twitter.com/cXRQaB6wbq

7.42am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

For the first time in more than two years, the ECB is expected to include a reference to the exchange rate in the introductory statement" it publishes to present the results of its monetary policy meetings.

While its comment on the euro is likely to be bland, the wording will be closely scrutinised - especially as this week's meeting is unlikely to produce big policy changes.

In terms of what we're expecting today, our European economists think that the policy stance will be left unchanged, but that the ECB will reinforce their communications with a resolutely dovish message, before easing further in December with an expansion of their asset purchase programme.

That December easing would coincide with the release of the ECB's staff 2023 inflation forecasts, which could form the basis for a policy shift.

Major European equity bourse futures looking mixed as we head to the European cash open, price action is relatively subdued and we appear to have entered the pre-ECB lull. pic.twitter.com/Zr4U8uSF07

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