Morning Report – Tuesday 25th August

Main Headlines

German companies and consumers cut spending sharply during virus related restrictions, leaving the economy in a deep slump from which it will only slowly recover. Figures from the statistics office show investment collapsed by 7.9% in the second quarter and household spending slid 10.9%, resulting in a 9.7% drop in total output, revised from an initial 10.1%. Exports registered a decline of more than 20%. Since then, industrial production and retail sales have roared back to life, suggesting the economy is making progress in recovering lost ground. But companies remain sceptical about the outlook, and signs are increasing that the brisk rebound following the end of lockdowns has started to stutter. Worryingly Germany is also now seeing the highest confirmed COVID infection cases for around 4 months.

Abu Dhabi is back in the dollar bond market, extending a debt binge by countries raising cash buffers to weather the pandemic. With the global economy on a slow path to recovery, corporate treasurers around the world are looking to stockpile cash, even if it means paying more. Abu Dhabi is among the list of countries selling bonds to bolster their finances in the face of lower oil and gas prices.

U.S. and European futures rallied alongside most Asian stocks overnight on optimism about coronavirus treatments and signs of progress on trade negotiations. The offshore yuan strengthened. Stocks rose in Japan, Australia and South Korea but dipped in China and Hong Kong. S&P 500 futures advanced after the benchmark notched another record high, with companies that benefit from a more robust economic recovery leading gains. Ten year Treasury yields ticked higher.

GBP

Sterling fell versus the euro and the dollar on Monday, amid lingering concerns over the lack of progress in talks between British and European Union Brexit negotiators. Investors so far are not making big bets on sterling, as the summer holiday season usually means less liquid markets. On top of that, a sizable number of investors believe Britain will be able to forge a last minute deal.

EUR

Investors are looking ahead to Germany’s IFO Business Climate Index release this morning. Softer than forecast data last week suggests there is downside risk. If there is a further confirmation of a negative turn in terms of outlook in Europe it will be detrimental to the euro.

USD

The dollar held onto small gains overnight after the United States and China both hailed a phone call between their top trade officials as a success. Moves were contained as markets were not expecting a breakdown of the trade deal and looking ahead to a speech from Federal Reserve Chairman Jerome Powell later in the week, which could shift the U.S. dollar in either direction.

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

7:00 a.m.: German GDP
9:00 a.m.: German IFO Business Climate
3:00 p.m.: US Consumer Confidence
3:00 p.m.: US New Home Sales