Spain: the first country in Europe to announce more than a million infections

The EUR/USD parity had returned to 1.1800, but it lacked any more momentum to continue its progression and stopped at 1.1880. The resurgence of COVID-19 in Europe has resulted in new health restrictions. curbing investor optimism in favour of the single currency. Spain, France and Italy announced new measures to fight the pandemic this weekend, as did Angela Merkel’s Germany this morning. The Spanish government has announced a general curfew from 11 p.m. to 6 a.m. and a new state of health alert for the next 15 days which could be extended to six months. The country is the first in Europe to announce more than a million infections. In Italy, cinemas, theatres, gyms and swimming pools will have to close until November 24. Some regions have already announced a curfew. Thousands of people took to the streets Monday night in Italy. They were protesting against the premature closure of restaurants and bars in an attempt to stem the spread of COVID-19. The demonstrations took a turn for the worst in Turin and Milan: Molotov cocktails were thrown at law enforcement and protesters attempted to storm the Lombardy regional parliament building. The deteriorating health situation and the reintroduction of these restrictive measures will affect the economic recovery in the eurozone. The probabilities of seeing the European Central Bank proceed to a further cut in its key rate in the coming months will be examined tomorrow during its monetary policy meeting. The market is becoming more and more accepting of this possibility, even if for the moment the future on the EONIA (European OverNight Index Average) for April 2021 is at –0.50%.

In the United States, all the attention is focused on the presidential race which has entered its home stretch. The polls still point to Joe Biden as the winner as citizens have started to vote. On the economic front, St-Louis Fed Chairman James Bullard has expressed optimism about the US economy. He noticed sustained growth in the third quarter. An initial estimate for it will be released Thursday and expectations are high with annualised growth of 32%, up from a –31.4% contraction in the second quarter. He added that the US has managed the pandemic well and that an end to the crisis is near…even though several states (Montana, Iowa, Minnesota and Wisconsin) have announced a record number of deaths from COVID-19.

Swiss National Bank Chair Thomas Jordan said yesterday that the negative rates and the central bank’s strong will to intervene in the markets have kept our currency from becoming too attractive. After several weeks unchanged, demand deposits with the SNB increased by CHF 1.85 billion last week. This latest increase suggests that the bank has intervened again in the markets as its Chairman had said it would if it deemed it necessary. It should also be noted that the eagerly awaited report by the US government on currency manipulators will not be published, according to internal sources, by the Secretary of State for the Treasury Steven Mnuchin before November 3, date of the presidential election. This semi-annual report initially expected for the month of April is ready but Steven Mnuchin, who focused on the collapse of the economy, has deferred publication.

The Central Bank of Russia kept its key rate unchanged at 4.25% during its meeting last Friday. It revised its growth forecasts for 2020 very slightly upwards, as it did for the price of a barrel of Urals crude. On the other hand, it reduced those of growth for 2021 from 3.5–4.5% to 3–4%. The CBR said the situation on the epidemic front was worsening whether in Russia or abroad and if this development were to be confirmed, the institution expects to have to adjust its key rate downwards. Analysts believe a 0.25% cut is possible at the December meeting.

In Turkey, the lira is collapsing and hitting all-time lows. Last week, the Central Bank of Turkey disappointed the markets by holding its rates steady. Caught between President Erdogan who wants to keep rates low to stimulate the economy and promote investment and the market which is attacking the currency, the CBT could only bring itself to see the dollar break the ceiling of 8 lire to the dollar to reach 8.2475 this morning. The lira is further weakened by the prospect of sanctions imposed by the United States after the purchase of S-400 missiles from Russia, political tensions with Greece and in the Caucasus as well as the latest altercation with French President Emmanuel Macron.