The usual threatening “no-deal” yoyo

It has been another week of consolidation for the EURUSD pair which is moving in the middle of the 1.1600–1.2000 fluctuation range in place since July 23. The greenback has lost a little bit of ground since President Trump’s discharge from the hospital, but the euro has failed to break the $1.1800 bar. The United States saw the publication of mixed employment figures on Friday. The US economy created fewer jobs than expected in September – 661,000 against 850,000 expected – and significantly fewer than in August when the number stood at 1.489 million. Nevertheless, the unemployment rate fell to 7.9%, lower than the 8.2% expected and down from 8.4% in August. The number of hours worked per week increased, which is also a positive sign. On the other hand, the increase in wages slowed down slightly from August. The job market continues to recover, but more slowly than in the summer. A new fiscal stimulus plan, still under discussion in Congress, is expected and discussions resumed last Wednesday in Washington on this new package intended to relieve households and businesses affected by the pandemic. This is because, although household confidence continues to strengthen and business confidence remains positive, uncertainties could end up weighing on consumer and business sentiment. But for the moment the discussions are deadlocked on the extent of the plan. The Democrats have voted in favour of a $2.2 trillion plan at the House of Representatives but have not obtained the approval of the White House, which is proposing $1.6 trillion, nor that of the Senate, which has a Republican majority. The latest twist came last night, when President Trump announced that he was suspending discussions and postponing until after the presidential election. He thus ignored Jerome Powell who urged the White House to launch this new aid plan to prevent the country from suffering tragic economic consequences. The Fed Chairman added that the risks of overspending seem to be smaller than the damage a weak recovery from too little fiscal support.

In the eurozone, on the other hand, the unemployment rate continued to rise to 8.1% in August. It was revised to 8.0% for July after an initial figure at 7.9%. But economic sentiment index exceeded expectations in September at 91.1 points, higher than the 89.0 expected and up from 87.5 in August. It shows a more marked improvement in services than in industry. Lastly, the publication of the consumer price index for September showed a slight deflation, at -0.3% against -0.2%. This is the second consecutive month of decline in the eurozone. In Europe, too, pressure is increasing on the authorities for more fiscal stimulus and the implementation of the €750 billion European recovery plan of submitted for approval to the parliaments of the 27 Member States.

The pound sterling is yo-yoing as talks go on between London and Brussels on their trade relations in the context of Brexit. Since the European Commission initiated infringement proceedings against the United Kingdom on October 1, the prospect of a ‘no deal’ has drawn closer. Neither side has anything to gain from this according to the German business press. Prime Minister Boris Johnson said the UK could ‘more than live with’ a no-deal Brexit but that that was not his wish.  Ursula von der Leyen and he have agreed to extend the duration of the talks by one month. Many disputes remain on fishing and state aid. The next summit of the Union to be held on October 15, where Emmanuel Macron will no doubt feel the pressure to try to soften the position of France, which still refuses all concessions on fishing.

On the rating agency front, Moody’s upgraded Slovenia to A3/stable from Baa1/positive. Standard & Poors confirmed the AAA/stable rating for Germany and the AA/stable for France. Lastly, Fitch confirmed Belgium’s AA-/negative and Cyprus’s BBB-/stable.

After the third quarter, the performance of the main economic indices is in the red in Europe for this year. To date, the Euro STOXX 50 has lost 13.67%, the CAC 18.11%, the FTSE 21.11%, Milan 17.34% and Madrid 27.36%. The decline is less for the DAX with -2.59% and the SMI with -3.61%. In the United States, the Dow Jones is slightly in the red (-2.68%) but the S&P is still up 4.03% while the Nasdaq has gained 24.32%. In Asia, the Nikkei is at a virtual equilibrium (-0.99%) while Hong Kong has lost 14.15% and Shanghai has gained 11.98%.