News of vaccine boosts global markets but lack of EU deal weighs down Sterling – Bibby's FX report

Mon 16 Nov 2020
Posted by: William Barns-Graham
Features

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Financial markets were buoyant at the start of last week as news emerged that the Pfizer-BioNTech Covid-19 vaccine had a recorded a 90% success rate on phase 3 trials.

This positivity has been reinforced already this week after reports today (16 November) that US-based biotech firm Moderna have had a 95% success rate for its own vaccine.

Pound surges on vaccine hopes…

Equity markets surged globally following reports of the Pfizer-BioNTech vaccine and the pound also rallied.

After opening the week just above US$1.310 and €1.11 Sterling was valued at highs of $1.33 and just below €1.13 on Wednesday.

…but slips as trade deal deadline passes

However, the euphoria subsided and so did Sterling as it became apparent that UK-EU talks would miss another deadline. It had been hoped that a deal would be agreed and ratified at this week’s EU leaders’ meeting on Thursday.

Sterling slid back to the US$1.31 mark and to just above €1.11.

With time running out ahead of the end of the transition period, traders are expecting considerable volatility as developments occur in the negotiations.

Japan growth boosts equities

This week has started with a fresh surge of optimism after Japan reported it had returned to growth in the third quarter, boosting stocks in the Far East especially.

With risk sentiment already buoyed by Joe Biden’s clear win in the US Presidential Election, global markets have generally returned to pre-pandemic heights.

However, the FTSE 100 is the exception to this because it is hampered by the ongoing lockdown and uncertainty over the UK’s future trade relationship with the EU.

Oil holds above $40 mark

Oil also benefitted from improved global risk sentiment and unexpectedly large drawdowns of stocks.

Its value surged from around US$38 per barrel to as high as $43. It opens this week around the $41 mark.

Metals fall

Metals – which usually rise in value during periods of uncertainty due to their status as a safe haven investment – dropped in value after the news of developments in the race to launch the Covid-19 vaccine.

Gold lost US$100 on Monday alone, falling from the mid $1900s to $1850. Silver also slumped from US$25.80 per ounce to as low as $23.60.

Bitcoin surge continues

Bitcoin continues to surge after the recent announcement that PayPal will include it as a trading currency on its online payments platform.

 It grew from just above $15,000 to almost $16,500 at its highest point last week.

Week ahead

The pound’s immediate future value will likely depend once again on the outcome of the UK-EU trade talks with any developments from the talks likely to lead to fluctuations.

Traders will continue to be on the lookout for any clues about further fiscal stimulus and interest rates. They will be listening in closely to speeches from prominent figures at central banks like the Bank of England (BOE), European Central Bank (ECB) or Federal Reserve (Fed).

Economic Data 

Highlights this week include: 

Today (16 November)      

  • Bundesbank monthly report
  • NY Empire Manufacturing index
  • Speeches:
    • ECB’s President Lagarde and Mersch
    • BOE’s Tenreyro and Haskel
    • Fed’s Daly and Clarida

Tuesday      

  • US retail sales, industrial and manufacturing production reports
  • API weekly crude oil stocks
  • Speeches:
    • ECB’s Lagarde and De Guindos
    • BOEs Bailey and Ramsden
    • Fed’s Bostik and Daly

Wednesday   

  • UK and EU inflation reports for October
  • US building permits and housing starts report
  • Speeches:
    • BOE’s Haldane
    • ECB’s Lagarde
    • FED’s Evans and Bullard

Thursday    

  • UK CBI industrial trends survey
  • US weekly jobless
  • Speeches:
    • ECB’s Lagare
    • Bundesbank’s Mauderer
    • Fed’s Mester.

 Friday     

  • UK Gfk consumer confidence report
  • UK data on retail sales and government borrowing
  • EU Consumer confidence report
  • Speeches:
    • ECB’s Lagarde
    • Bundesbank’s Weidmann
    • Fed’s Kaplan