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Back to growth in 2021?

As the days tick down to the end of the year, we think it’s fair to say that the headlines and market moves for the coming month will continue to be dominated by coronavirus and the UK-EU free-trade agreement. Reports over the weekend stated that Brexit negotiations were 95% done, with the well-established sticking points remaining. Fisheries are mostly inconsequential to the UK’s economic prospects, meaning the UK government is likely to cede ground on this issue. Also, some vaguely drawn up principals on competition will likely be good enough to placate the bloc’s economic powerhouse nations. However, EU negotiators are well versed in brinkmanship–the Uruguay round of GATT negotiations springs to mind–so the potential for a late twist remains.

Moving to the pandemic, just this morning, we have had news that the coronavirus vaccine produced by Oxford University and is 70% effective in preventing people getting the virus. Admittedly, this is a lower rate of effectiveness than doses from the Pfizer and Moderna vaccine. However, the Astra-Oxford shot is cheaper and easier to transport, making it more suitable for middle-income countries. Meanwhile, France’s economy has slumped amid fresh virus restrictions, Purchasing Manager Index data for services and manufacturing came in lower than expected and significantly lower than the previous month. Interestingly, markets are bypassing signs of short-term economic weakness and really focusing on what the prevalence of a vaccine will mean for growth in 2021.

Our best case scenario for 2021 is that a number of scenarios play out; virus numbers begin to dwindle with the widespread distribution of vaccines, US politicians manage to pass another fiscal stimulus package, the UK-EU achieve a Brexit trade agreement, and US-China relations begin to ease. Whilst this remains the goldilocks scenario, it’s distinctly more likely than it was just a month ago. Markets have taken this as a signal to improve risk-appetite, with global stock indices recovering handsomely and the Dollar declining to multi-year lows. With the global interest-rate climate remaining so low, we see the potential for Sterling and the Euro to further appreciate against the Greenback, and global bond yields to recover back to 2018 levels.

Bottom line: Even if the best-case scenario fails to materialise, it seems absurd not to assume that things will get better in 2021. The White House will be back under more traditional leadership, Dominic Cummings will no longer be pulling Boris Johnson’s strings and vaccines will allow the global economy to begin its recovery. We might have a long way to go, but just now, things are looking brighter.

The week ahead


Sterling gained for the 5th consecutive week on a trade-weighted basis, as optimism over a Brexit trade agreement overshadowed the deteriorating economic backdrop in the UK due to a second national lockdown. Last week, GBP/USD hit resistance at 1.3312 for the second time this month, although we open the week ahead rallying above this level. Meanwhile, GBP/EUR has cleared the 1.12 figure this morning. On Monday, Boris Johnson is expected to announce plans to restart tiered restrictions come 2nd December, as well as an increase in virus testing nationwide. As trade talks continue, there is a chance a deal could be announced at the tail-end of the week. EU officials say 95% of a deal is already agreed to. However, Irish Foreign Minister, Simon Coveney says he doubts a deal will be reached within 10 days. The government’s spending review will be released on Wednesday providing an updated outlook for the UK economy over the coming year, as well as the government’s fiscal objectives.

  • Monday’s preliminary November readings for Markit’s PMIs came in better than expected, with Manufacturing improving on October’s figures at 55.2. Services and the Composite reading indicated contraction for the first time since June 2020 at 45.8 and 47.4 respectively, although both indicators were not as bad as expected.
  • Friday’s Nationwide House Price index for November is expected to show 0% monthly growth in house prices, while the annual reading is expected to tick lower to 5.2% from 5.8%.


The Euro finished last week relatively unchanged on a trade-weighted basis, closing just 0.2% lower on its index. The index’s 50 and 100 daily moving averages continue their convergence, trading just 0.2% apart as of Monday, and could provide technical resistance for Euro based pairs in the coming weeks. Against the Greenback, the Euro closed in on the 1.19 figure several times last week but failed to break above the level. The ECB’s Financial Stability review is due to be released on Wednesday, while a detailed account of the latest ECB monetary policy meeting will be released on Thursday. Although the Euro may be stagnant, continued US Dollar weakness may benefit the common currency as optimistic vaccine headlines continue to appear.

  • This morning’s Eurozone PMIs mostly disappointed, posting deeper contractions than expected across Europe’s major economies. The Eurozone aggregate readings showed expansion in Manufacturing at 57.9, while the Services reading posted 41.3 and the Composite reading came in at 45.1. All three showed a deterioration from October’s figures.
  • Tuesday’s final reading of German GDP in Q3 is expected to show 8.2% growth, unchanged from previous estimates.
  • The latest German IFO sentiment surveys are released on Tuesday, with Business Climate, Expectations and Current Assessment surveys all expected to show deterioration in sentiment. This would mark consecutive declines in business climate and expectations surveys.
  • On Friday, the final reading of French GDP for Q3 is expected to be unchanged from previous estimates at 18.2%.
  • Friday’s Italian Consumer and Manufacturing Confidence are both expected to show deteriorations from October’s figure, coming in at 99.0 and 99.3 respectively. 


Last week, the US Dollar continued its gradual descent. It finished the week almost 0.5% lower, as risk appetite remained elevated on vaccine optimism. Thanksgiving this Thursday means economic data releases have been pushed forward with Wednesday being the busiest day of the week. In addition, month-end flows could dominate price action at the end of the week, particularly as the bank holiday may lead to thinner liquidity. The latest Federal Reserve meeting minutes will be released on Wednesday, providing a detailed insight into the US economy. It should be noted that in the press conference Fed Chair, Jerome Powell expressed concern over the slowing economic recovery in the US.

  • Monday’s Markit PMIs are expected to show growth in November in Manufacturing and Services, albeit slower growth than in October. The Services PMIs is expected to come out on top at 55.0, while Manufacturing PMIs is forecast 53.0.
  • Tuesday’s CB Consumer Confidence for November is expected to read 97.9, down from 100.9 in October.
  • Tuesday’s Richmond Manufacturing Index for November is expected to tick lower to 21 from 29 in October, which would mark the indicator’s first decline since March 2020.
  • Wednesday’s Initial Jobless Claims is forecasting 733k people claiming unemployment in the last week, down from 742k previously. Meanwhile, Continuing Claims is expected to fall to 6m from 6.4m last week.
  • Wednesday’s Annualised Q3 GDP figure is expected to be unchanged from previous estimates at 33.1%.
  • Preliminary Durable Good Orders for October is expected to indicate slowing growth at 0.9% from 1.9% previously, along with Personal Spending which is expected to read 0.4% from 1.4% in September. 

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