Good morning,

Once again we find ourselves getting towards crunch time in Brexit negotiations: In theory a deal needs to be hashed out this week, to allow it to be voted on at the upcoming EU summit which begins on Thursday. The UK have reiterated that work needs to be done on the areas of fisheries and the level playing field, but we’re yet to see any agreeable concessions being made. What we have seen though is a market that is starting to warm up to the idea that a deal could be done, which is being reflected in the value of a Pound. Sterling went into the weekend above a couple of key levels, which it has struggled to get through for the last month in a sign of the market trying to get ahead of the curve regarding any possible announcements. We’ve seen these moves come and go before though, so it’s not as if the market knows something we don’t, it’s just they know where the downside is for the Pound and view the possible moves upward as all the greater.

Staying with currencies: China have removed a piece of regulation that made betting against the renminbi an expensive endeavor: Previously you had to hold 20% of risk reserves if you wanted to short the currency, which tied up a huge amount of capital. Now there is no official reserve requirement and as such the market is free to bet that the Yuan will weaken. This had an immediate impact overnight, with the currency moving close to its allowed 1% daily movement, but perhaps has longer term implications for the value of the Dollar: Investors have feared the US Dollar would continue its decline from the highs it saw a the start of the global lockdown, but as to bet against one currency you effectively have to bet on another, the dollar could see some reprieve. There’s also an argument to say that, economically, China is in a far better place than the US at the moment and as such bearish bets on their currency aren’t going to be as strong as they were at the time that China introduced the 20% requirements, but it does mean there’s another factor to consider when plotting the course of the value of the world’s reserve currency over the coming months.

Obviously the election is the next big risk event for the greenback and forecasting which way it goes on whichever party wins the White House is a tough call for anyone, but the widening of the polls in favour of Biden has seen a weakening of the Dollar and if he were to win and take the Senate as well then it is likely that some fairly chunky stimulus would be on the agenda, which in turn would have a weakening effect. The current state of polling is that Biden has a 12-point nationwide lead over Trump and a 3-point lead over Trump in Florida, which is seen as the swing state of swing states. Late last month Trump unveiled a policy he’s calling his “platinum plan” which would direct up to $500bn into Black communities. The timing of the unveiling was pretty poor, as it got quickly drowned out by the farcical first debate, but there are some strong would be vote winners in there, though currently polls show Black voters are only backing him at 9%, versus Biden at 88%.  Bloomberg has some detail on what the plan contains.

Also in the US: There seems to be a rekindling of a possible stimulus plan, this side of the election. Both sides seem to have taken note of various Federal Reserve members saying that they have very limited ammunition left to be able to fight a further downturn. Speaking on CNN on Sunday, economic advisor to the White House Larry Kudlow has said that Trump may pitch a package that’s even bigger than the Democrats $2.2trn plan. Though that would be unpopular with his party, who have struggled to swallow the $1.8trn that Steve Mnuchin has proposed, and also Democrats who will argue for more funds being allocated to public health bodies to defeat the virus –  Something that Trump isn’t a massive fan on now that he’s immune to it! – a deal at this late stage would likely be a bit of a boost to Trump and give him something to tweet about that won’t be flagged or removed, but it still seems like a long shot, particularly if his own party aren’t a fan of it.

Back in Europe, most of the news is about lockdowns – or perhaps more aptly, how to avoid them. Restrictions on social activities and gatherings are ramping back up as governments try and slow the rate of infection, but nobody has the stomach (or pockets deep enough) for a second lockdown. Italy is now on the catch-up curve with the most other European countries with 5,000 new cases daily, whilst France is in the high teens and the UK is quickly catching those numbers up. We’re due to hear from the UK government today on what restrictions they’ll be imposing, but it seems like most of the news is already out. This BBC article gives a rundown of what we can expect.

I listened to a very interesting podcast at the weekend, hosted by Kara Swisher. She was interviewing Dr Slaoui, who is one of the people in charge of “Operation Warp Speed”, the US government’s covid vaccine programme. He talks in detail about the process and progress in the vaccine development and gives great insight as to when we might expect it (as early as December is possible) how quickly it could be deployed  (30 million doses a month in the US, ramping up to 90 million after a couple of months) and the reasons why people shouldn’t be alarmed that it’s going through trials so quickly (because they’re not cutting corners, they’re just utilising unlimited money and logistical resources). It’s a great listen, as is another episode with Killer Mike, which is where I heard about Trump’s platinum plan and how he’s actually on the fence between Trump and Biden, because he doesn’t see a vast difference between them.

Today is Columbus Day in the States, which means a quiet afternoon session. Equities have had a good start to the week in Asia, though a mixed bag so far in Europe. There isn’t much data, but there are plenty of central bank speakers, including Christine Lagarde and Andrew Bailey, but neither is likely to say something off message. As always, we’ll be looking out for developments on the Brexit front as the biggest possible market movers.

Have a great week.


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