Morning Report – Monday 20th July

Main Headlines

The four EU governments that are holding up negotiations over a 750 billion euro rescue deal are ready to compromise. The Dutch and their allies are satisfied with allocating 390 billion euros of the fund for grants, with the rest coming as low interest loans. The bloc’s 27 leaders will gather this afternoon in Brussels to settle outstanding issues. “I believe progress has been made,” Dutch PM Mark Rutte said.

European stock futures rallied and defied U.S. losses amid optimism over the massive stimulus package. Asian equities also drifted higher, led by a rally for Chinese markets. Treasuries kept their upward momentum. Oil fell with most base metals.

Gold is expected to hit a record over the next 6-9 months, according to Citigroup, which gave 30% odds it will top $2,000 an ounce as early as October. Loose monetary policy, low real yields, record ETF inflows, and increased gold asset allocation are all bullish factors, the bank said. It’s also bullish on silver on a 6-12 month view.

GBP

Last week saw British gross domestic product data for May rise less than expected, prompting investors to doubt the fiscal stimulus measures already announced will be enough to prop up the economy. Fewer British workers lost their jobs in June, official data showed, but economists said unemployment was still expected to jump as the government unwinds its expensive job retention scheme. Brexit negotiations continue this week.

EUR

The euro jumped to a four-month high this morning, boosted by European leaders saying progress was being made in talks to take on debt jointly to help their economies. The euro touched the highest level since March, as EU leaders appeared within a whisker of breaking an impasse over a proposed 750 billion euro recovery fund. The marathon talks have been adjourned until today.

USD

The dollar index was flat overnight, with its advance kept in check as investor risk appetite continues to be strong, underpinned by bets of more stimulus not just from Europe but also the United States. A battle in the U.S. Congress over a new coronavirus aid bill began late last week as Republicans and Democrats pushed for their own agenda. The Republicans want the upcoming coronavirus aid bill to cost no more than $1 trillion while leading Democrats have pledged to fight for much more – in the range of the $3 trillion.

Main Economic Data/Central Banks/Government (All Times BST)

4:10 p.m.: BOE’s Haldane and Tenreyro speak at re-appointment hearings
U.S. Secretary of State Pompeo meets with U.K. PM Johnson and Foreign Secretary Raab
Brexit negotiators gather for a week of talks in London