Previously, Lagarde said that the ECB is ready to deploy more monetary stimulus to aid the Eurozone’s economic recovery. 

This week the Euro has recovered, gaining 0.90 percent, and breaking a two-week losing streak.

Recently, the European Central Bank President, Christine Lagarde hinted at a possible change in the bank’s inflation target, commenting that given the current low inflation the concerns policymakers are facing are different. This calls for a change in the bank’s current monetary policy strategy, which would strengthen the bank’s capacity of monetary policy to stabilize the economy when facing the lower bound.

Previously, Lagarde said that the ECB is ready to deploy more monetary stimulus to aid the Eurozone’s economic recovery. 

“ECB stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry,” she said.

Lagarde also linked the deflationary forces with the late appreciation of the Euro, which has appreciated since May, despite losing some ground last month. She said that the bank would continue monitoring the euro’s strength, though didn’t hint any possible intervention in the foreign exchange market.

Coronavirus cases are currently surging in Europe, with 5,042,794 reported cases (including Russia) as well as 222,765 total deaths. In the Eurozone, Spain leads in the number of infections, with 769,188 total cases as well as a death toll of 31,791, followed by France, the UK, and Italy.

Fears for a second wave are increasing, given the surge of cases in countries like Spain, Germany, and France. Governments are already announcing measures to curb the advance of the virus, for example, the German Chancellor Angela Merkel announced the government’s plan to act regionally this time, with the purpose of avoiding another national lockdown, while the United Kingdom government made the decision to impose a curfew on pubs, bars, and restaurants, a move that has been heavily criticized by the leisure sector representatives.

On Monday, the markets learned that services sentiment stood at -11.1 in September, improving from the previous month’s -17.2 and way better than what the analysts expected, as they foresaw it to be at -15.3. In line with the analysts’ expectations, consumer confidence stood at -13.9, improving from August’s -14.7, while Industrial Confidence stood at -11.1, below the analysts’ expectations who foresaw it to be at -9.5, but better than August’s figure, which stood at -12.8. Business Climate was at -1.19, improving from August’s -1.34 and better than the -1.38 that the analysts expected.

On Thursday Markit Economics published the Manufacturing PMI for September, which was at 53.7, signaling an expansion of the manufacturing sector and remaining unchanged from the previous month’s report.

Eurostat confirmed Europe is now facing deflationary pressures, as the producer price index managed to contract by 2.5 percent in August (year-to-year) after going down by 3.1 percent in the previous month. Surveyed analysts expected it to contract by 2.7 percent. In monthly terms, the producer price index climbed by 0.1 percent in August, remaining in line with the analysts’ expectations and below the previous month’s figure, which stood at 0.7 percent.

The unemployment level slightly rose in August, at 8.1 percent, in line with the expectations of the surveyed analysts and over the previous month’s 8 percent.

The bank of Canada Tiff Macklem said on Thursday that it’s certain that the Canadian government will exit the pandemic with higher public debt levels. 

Last week, the Canadian Dollar gained 1.45 percent against the greenback, advancing for the second consecutive week.

So far, 180,179 coronavirus cases have been reported in Canada, while the death toll is at 9,608. Given the recent rise in the number of COVID-19 cases in certain zones, new restrictions have been imposed by the Ontario government, like limiting indoor dining at restaurants and bars, as well as closing movie theatres, gyms, and casinos.

On Tuesday, Canada’s national statistical agency reported that imports amounted to 47.38 million in August, after being at 47.93 billion in the previous month. Exports amounted to 44.93 million in the same month, after being at 45.4 billion in July. International Merchandise Trade, which registers the difference in the value of imports and exports of Canadian goods (excluding services), stood at -2.45 billion, way below the analysts’ expectations, who foresaw it to be at -0.29 billion and after being -2.53 billion in the previous month.

On Wednesday, the Richard Ivey School of Business published the Ivey Purchasing Managers Index for September, which signaled a slower expansion of the business sector in four months, at 61.1 after being at 64.6 in the previous month. The seasonally adjusted PMI was at 54.3, signaling a slower expansion, as the previous month’s PMI stood at 67.8.

On Thursday, the Canadian Mortgage and Housing Corporation reported that new residential construction projects dropped to 209.000 (year-to-year), fewer than what the surveyed analysts expected, as they foresaw it to be at 240.000, and after being at 261.500 in august.

The bank of Canada Tiff Macklem said on Thursday that it’s certain that the Canadian government will exit the pandemic with higher public debt levels. He highlighted that without the fiscal and monetary policy actions that have been taken since the beginning of the pandemic the economic devastation would have been higher.

“As much as a bold policy response was needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road,” he said during a video conference with a financial risk management group, “Without the fiscal and monetary policy actions, the economic devastation of the pandemic could have been much, much worse,” he added.

Macklem also commented that full economic recovery will take a long time while asking the public to practice physical distancing in order the avoid the uncontrollable spread of the virus and a second lockdown.

On Friday, Canada’s national statistical agency reported that the Unemployment Rate fell to 9 percent in September, lower from what the analysts expected as they expected it to fall to 9.7  percent, and below the previous month’s figure which stood at 10.2 percent in the previous month. The Participation Rate stood at 65 percent, after being at 64.6 percent in the previous month and over the analysts’ expectations, who foresaw it to be at 64.8 percent.

Average hourly wages went up by 5.43 percent, after being at 6 percent in the previous month, while Net Change in Employment was at 378.200, higher than the previous month’s figure, which stood at 245.800 and over the analysts’ expectations, who foresaw it to be at 156.600.

The Federal Reserve Vice Chairman, Richard Clarida praised the Central Bank and the Congress’ efforts to stimulate the economy, though warned that it may take more than a year to return to the pre-covid activity levels.

Last week the dollar recovered against a bundle of its main competitors, advancing 0.67 percent and breaking a two-week losing streak.

The coronavirus outbreak continues advancing in the United States, as cases soared in the Midwest. So far, 8,343,140 infections have been reported, while 224,283 have died. In the world, 40,023,135 coronavirus cases have been reported so far, as well as 1,115,599 total deaths.

Hopes for Democrats and Republicans are reaching an agreement on a stimulus package before the November 3 election faded after the Treasury Secretary, Steven Mnuchin said that he suspects that a stimulus package won’t be enacted before the elections.

“At this point getting something done before the election and executing on that would be difficult, just given where we are and the level of detail, but we’re going to try to continue to work through these issues,” he said during a conference.

Next week, the Republican-dominated Senate is set to vote on two different stimulus proposals. The first one, which is set to be voted on Tuesday, is an attempt to extend the Paycheck Protection Program, while on Wednesday the already rejected “Skinny” bill, named that way because it’s only worth US 300 billion, way below the $2 trillion price tag that the Democratic party has demanded. For his part, President Donald Trump recently said that he is ready to sign a “big, beautiful stimulus”.

On Tuesday, the US Department of Labor Statistics reported that the  Consumer Price Index, excluding food and energy prices, climbed by 0.2 percent in September (month-to-month), lower than the previous month’s 0.4 percent, and remaining in line with the analysts’ expectations. In yearly terms, the consumer price index, excluding food and energy prices, climbed by 1.7 percent, lower than the analysts’ expectations, and remained unchanged from the previous month’s figure.  In yearly terms, the Consumer Price Index, including food and energy prices, climbed by 1.4 percent, remaining in line with the analysts’ expectations and over the previous month’s 1.3 percent, while in monthly terms it went up by 0.2 percent, below the previous month’s 0.4 percent and remaining in line with the analysts’ expectations.

On Wednesday the Producer Price Index was reported, as it stood at 1.2 percent (year-to-year) after being at 0.6 percent in the previous month and over the analysts’ expectations, who foresaw a 0.9 percent climb. In monthly terms, the Producer Price Index stood at 0.4 percent in September, over the analysts’ expectations who foresaw a 0.2 percent climb and higher than August’s 0.3 percent.

The Federal Reserve Vice Chairman, Richard Clarida praised the Central Bank and the Congress’ efforts to stimulate the economy, though warned that it may take more than a year to return to the pre-covid activity levels.

On Thursday, the US Department of Labor reported that initial jobless claims increased to 898.000 from 845.000, more than expected as the surveyed analysts foresaw it to fall to 825.000. Continuing jobless claims went down to 10.018.000, from 11.183.000 and better than the analysts’ expectations, as they foresaw it to fall to 10.700.000.

The Federal Reserve Bank of Philadelphia reported that its Manufacturing Survey for October climbed to 32.3, from 15 in the previous month and way below the analysts’ forecast, as they predicted it to be at 14.

On Friday, the US Census Bureau reported that retail sales went up by 1.9 percent in September (month-to-month), way better than the 0.7 percent that the analysts expected and over the previous month’s 0.6  percent. The Board of Governors of the Federal Reserve published the Industrial Production figure, which showed a 0.6 percent contraction in September, after climbing by 0.4 percent in the previous month.

The University of Michigan reported that consumer confidence went up to 81.2 in October, from the previous month’s 80.4, better than the analysts’ forecasts, who expected it to be at 80.5.

The US faces the risk of longer-run damage to the productive capacity of the economy as well as to the lives of those that have been affected by the spread of the coronavirus pandemic. 

The US dollar dropped by 0.39 percent last week against a bundle of its main competitors, giving up last week’s gains and closing the week at the 92.32 level.

The US Census Bureau also reported last week that retail sales went up by 0.3 percent in October (month-to-month), lower than analysts’ expectations of 0.5 percent, and after advancing by 1.6 percent in the previous month. The retail sales control group went up by 0.1 percent in October, lower than analysts’ expectations of 0.5 percent and after being at 0.9 percent in the previous month. Excluding the automobile sector, retail sales advanced by 0.2 percent in October, lower than analysts’ forecast of 0.6 percent, and after being at 1.2 percent the previous month.

In monthly terms, industrial production went up by 1.1 percent in October, higher than the forecasted 1 percent and after shrinking by 0.4 percent in the previous month. The Import Price Index shrank by 0.1 percent in October, after going up by 0.2 percent in the previous month and lower than the forecasted 0.2 percent. The Export Price Index went up less than expected, gaining 0.2 percent and after going up by 0.6 percent in September.

Federal Reserve Chairman Jerome Powell commented that the economy we knew is probably a thing of the past, despite beginning the path towards economic recovery.

“We’re recovering, but to a different economy,” he said. “It will be one that is more leveraged to technology, and I worry that it’s going to make it even more difficult than it was for many workers.”

Powell highlighted the fact that the US faces the risk of longer-run damage to the productive capacity of the economy as well as to the lives of those that have been affected by the spread of the coronavirus pandemic. So far, 12,589,088 COVID-19 cases have been reported in the United States, as well as 262,701 total deaths. Since the beginning of the month, around 3 million new cases have been reported.

On Wednesday, building permits went up by 1.545 million, remaining unchanged from the previous month’s figure and lower than expectations of 1.56 million. In monthly terms, housing starts stood at 1.53 million, higher than the previous month’s 1.459 million and higher than the forecasted 1.46 million.

On Thursday, the US Department of Labor reported that initial jobless claims were at 742,000 in the week ending November 13, after being at 711,000 in the previous reporting period. The figure was higher than analysts’ expectation of 707.000.

Joe Biden was declared the winner of the presidential election by the media networks, though President Donald Trump’s legal team is claiming widespread election fraud. Georgia, one of the disputed states, already certified its election results though Trump’s team has asked for a second recount, while Pennsylvania and Michigan are expected to certify their results this week.

New COVID-19 strain wreaks havoc on British economy; GBP recovers; UK economic data remain unchanged.

Bank of England Governor Andrew Bailey said recently that the latest surge in the number of COVID-19 infections has put the British economy in shambles, delaying the country’s recovery.

“ in a very difficult period at the moment and there’s no question that it’s going to delay, probably, the trajectory,” he said during an online speech, adding that he expects unemployment to be over the current 4.9%, at 6.5%.

Regarding the possibility of setting interest rates below zero, he said that such a move could hurt the banking system, as it would complicate banks’ efforts to earn a rate of return and would hurt lending to other companies.

Bailey expects that economic activity will be depressed until vaccines are widespread enough to justify lifting some of the restrictions.

The coronavirus crisis continues to escalate in England due to the spread of a new strain of COVID-19. So far, 3,118,518 coronavirus cases and 81,960 total deaths have been reported since the beginning of the pandemic, making the UK the fifth most affected country in the world. The new strain is said to be more contagious, though it seems that the vaccines are still effective against it. In order to hinder its spread, the UK government decided to impose a national lockdown until the end of March.

According to England’s Chief Medical Officer Chris Whitty, the country is entering the most challenging phase of the pandemic, as hospitals are being overwhelmed and bodies are piling up.

“We’re now at the worst point of this epidemic for the UK. In the future, we will have the vaccine, but the numbers at the moment are higher than they were in the previous peak — by some distance,” Whitty said.

The UK is expected to hit its target of vaccinating 13 million people by mid-February.  

Economic Calendar

Markets learned this week that like-for-like retail sales rose less than expected at 4.8% in December (year-on-year), against November’s 7.9%. Analysts had expected it to be at 7.9%. This is the worst annual change in 25 years.

“Physical non-food stores, including all of non-essential retail, saw sales drop by a quarter compared with 2019,” said the British Retail Consortium’s chief executive. “Christmas offered little respite for these retailers, as many shops were forced to shut during the peak trading period.”

Pound Recovers

So far this week, the pound sterling gained 0.24% against the US dollar, recovering from the previous week’s losses and gaining back lost ground at the beginning of the week.

The pound’s losses at the beginning of the week were attributed to expectations for negative cash rates, right after Monetary Policy Committee Member Silvana Tenreyro said that further cuts would continue to provide economic stimulus.

“GBP will have to brace itself for another wave of negative rate headlines,” said an analyst at ING. “GBP will be vulnerable to negative rate talk during lock-downs and EUR/GBP risks 0.91.”

The bank is currently divided regarding the feasibility of imposing negative cash rates, though Tenreyro said that at this point, the conclusion of such discussion seems obvious.

“Once the Bank is satisfied that negative rates are feasible, then the MPC would face a separate decision over whether they are the optimal tool to use to meet the inflation target given circumstances at the time,” she said.

The general weakness of the pound since the beginning of the year is linked to the current coronavirus situation. As we already mentioned, the country is now facing its worst moment since the beginning of the pandemic and has yet to begin a massive vaccine rollout.

UK Economic Data Unchanged

Since our last report, the main economic indicators have remained unchanged.

November’s inflation data were way below the Bank of England’s inflation target, which is currently at 2 percent. The Consumer Price Index was below expectations, falling by 0.3% in yearly terms, after rising by 0.7 percent in the previous period. In monthly terms, it went down by 0.1 percent, also against projections, and underperforming the previous month’s figure.

The gross domestic product expanded by 16.0% in the third quarter, over expectations of 15.5%. Unemployment data shows an improving labor market at 4.9%, also against expectations of 5.1%, after being at 4.8% in the previous period.

Upcoming Events

• On Friday, the Office for National Statistics will publish the industrial and manufacturing production data.

• Also on Friday, the gross domestic product data will be released.

• The trade balance data will also be published on Friday.