Essential Insights 

  • GBP/USD rises above 2% on the day amid Brexit tensions , despite a 0.6% increase in UK GDP
  • Failure in stimulus talks has seen US and Asian stocks under pressure
  • Euro in the spotlight amid concerning high valuation noted during the ECB press conference

Equities 

US equity bourses have remained  under pressure with larger tech stocks such as AMD and NVIDIA slipping and thus failing to provide support to stock indexes. The NASAQ composite slipped 0.7% with the NASDAQ 100 falling 0.8% earlier today as tech stocks plummeted. A softer dollar has cushioned the pain for other indexes such as the S&P 500 which is up around +0.17% on the day. Bloomberg reported that this weakness in tech stocks was catalysed by the announcement from Softbank Group that it would be investing in tech companies using derivatives.

European stocks were under pressure with the S&P Europe 350 Index down -0.68% on the day and the Euro Stoxx 50 Index largely flat at the time of publishing. This comes amid concerning comments from the ECB that a high euro exchange rate could have consequences for prices in the medium term. In addition, thin liquidity in the market combined with option trades is creating  more volatile market conditions.

UK 

UK GDP data was reported at +6.6% for the month ending in July, this was in line with market expectations. Whilst the majority of sectors such as construction grew, output remained underpinned at 11.7% lower than February figures triggering demand concern.

However this alone was not the reason why GBP/USD fell more than 2% in a day. As previously mentioned (check article: Boris Johnson under serious heat), PM Boris Johnson has threatened to walk away from the Brexit divorce agreement signed last year with the European Union, threatening to not make a deal with the EU by year end, this action takes advantage of a clause within the Bill that was signed. The European Union fired back on Thursday, threatening legal action unless the Prime Minister withdrew his threats of exploiting the clause to not form a deal with the EU. Though Micheal Gove , Chancellor of the Duchy of Lancaster, revealed that Britain will not be withdrawing the bill. This has triggered a new fresh wave of serious Brexit uncertainty, months of negotiating rounds and potential compromising from both parties have seemingly now crumbled. Tensions between the UK and EU are at fresh highs and this have clearly been reflected on the Sterling currency strength and UK stocks.

US 

Asian and US equity bourses have generally been under pressure amid a failure in congress to make real progress on new stimulus packages amid concerning signs that the US labour market is beginning to crack after significant improvement. Analysts note that US initial and jobless claims data has not carried on with the improving momentum illustrated from previous data releases , suggesting that the recovery is beginning to stall. Coupled with this are increasing covid-19 outbreaks, this could turn into a much more dire situation where underemployment rates begin to pick up amid covid uncertainty, but without government support , US macros are at risk of falling back.