Daily Market Pulse

Trump calls off negotiations on Covid-19 relief legislation until after the election


North American shares on Wall Street fell sharply on Tuesday, while the USD rose almost 0.3% against a basket of major currencies after U.S. President Donald Trump called off negotiations with Democratic lawmakers on Covid-19 relief legislation until after the election. This just illustrates the fact that the stock and currency markets will experience a bumpy ride until election day on Nov, 3th. On the economic data front, the National Statistics Institute yesterday released its trade balance for August. The U.S's trade deficit climbed to $67.1 billion, up from $63.6 billion beforehand. Both exports and imports increased, as the U.S economy continues to recover from the sharp downturn of earlier this year. Today, the U.S Stocks of Crude Oil and Petroleum Products report will provide insight into the balance of supply and demand in the oil market. Also, this evening’s release of minutes from the September Federal Open Market Committee meeting will also be one area of interest for market participants.


The Euro weakened 0.37% against the USD on Tuesday, trimming the previous day’s gains. The losses were capitalized by an abrupt halt in U.S stimulus negotiations, Brexit talks entering their final critical few weeks and further Covid-19 measures in Europe. Germany has become the latest European country to bring back a series of strict measures to fight the Covid-19 pandemic, including late-night curfews for bars and restaurants in its country’s largest cities, Frankfurt and Berlin. Earlier this morning, the new German Industrial Production data showed a stark contrast with factory orders data published yesterday, where new factory orders in Germany had increased by 4.5% in August compared to July. The recently released Industrial Production output came in at -0.2% in September, suggesting that the recovery in the manufacturing sector likely lost momentum. Today, European Central Bank President Lagarde is due to speak at the Europlace conference in Paris.


The Sterling sharply slipped 0.72% on Tuesday after reaching its three-week high during the session. The GBP took a hit on the back of reports that the EU has no plans to make concessions on fishing quotas and state aid to the UK Prime Minister Boris Johnson before next week's Brexit deadline. Also, the currency market saw a risk-off environment in reaction to the U.S President Trump’s abrupt decision to call off talks with Democrats on the economic relief package to boost the American economy. This, in turn, led investors to take refuge in the USD’s safe-haven status, which edged up 0.40% against a broad basket of major currencies. It is a quiet day on the data front, with investors waiting for U.S Federal Open Market Committee minutes this evening and Bank of England Financial Policy Committee Meeting Minutes tomorrow.


The JPY edged up (0.07%) and slightly recovered from its previous losses. After a Tuesday, which was relatively quiet on the economic data front, the Japanese yen regained the market’s attention as Trump’s statements, Covid-19 woes in Europe and Brexit fears favor the safe-haven JPY. It’s worth mentioning that the JPY also found support after investors completely digested the latest statement from the Bank of Japan’s governor, Haruhiko Kuroda, which said: “Asia's economic conditions remain severe but the downturn in growth has been moderate compared with that of other regions.”. For today, the readings of Japan’s Coincident Index and Leading Economic Index for August, forecast 76.4, and 89.4 respectively, as well as Fed minutes, should offer some direction to the pair USD/JPY.


The Loonie closed down -40%, reversing all of Monday’s gains. On the fundamental front, Canada released on Tuesday their trade balances for August. Canada’s trade deficit edged lower to C$2.4 billion, down from C$2.5 billion, as both exports and imports fell. However, the Canadian dollar climbed in August, so this data is better than it looks. In US dollar terms, Canadian exports rose 1.0% in August, and imports were up 0.8%. Investors are keeping a close eye on the Federal Open Market Committee (FOMC) minutes from the September meeting, which will be released later today. The FOMC minutes could be useful in carrying details of the debate on conditions needed to trigger a rate rise under the Federal Reserve's new approach in aiming for 'average inflation'.


The Mexican peso broke a sequence of four sessions followed by gains against the USD on Tuesday. The MXN edged down 1.45% after Trump tweets stimulus talks are over. The MXN had been supported by an almost USD 14bn infrastructure plan unveiled the day before, however, the Trump's tweets raised serious concerns over the U.S economy situation and the impact of the Nov. 3 U.S presidential election on Mexico. The latest automotive industry report also added pressure on the MXN, albeit it showed Mexican vehicle sales grew 0.9% in September. Because, the rise of only 0.9% means a slowdown, after the monthly increases of 20.4%, 49.6%, 16.0%, and 5.8 % in May, June, July, and last August, respectively. This data confirms that the automotive industry will have a very slow recovery.


In China, the markets are still shut for its Golden Week holidays until Thursday. 


The BRL traded lower (0.41%) after intraday trading hit about 0.8% high. The Brazilian real was hit after a U.S President Donald Trump rejected the stimulus package that had been negotiated with Democrats. However, supporting sentiment in Brazil, Economy Minister Paulo Guedes, and Rodrigo Maia, the speaker of the lower house of Congress, reinforced the need to comply with the spending cap and to accelerate the approval of reforms. Also collaborating for a positive tone, the International Monetary Fund (IFM) said in its annual report that Brazil’s economy is projected to shrink by 5.8% in 2020, revising a more pessimistic forecast of 9.1% contraction made mid-year. Nonetheless, the IFM warned that given a sharp rise in the primary fiscal deficit, gross public debt is projected to jump to around 100% of GDP in 2020, remaining high over the medium term. Later today, investors will be keeping a close eye on the government's agenda, where the federal government will reveal how it plans to fund its new social welfare program “Renda Cidadã”.


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