LCG: EU legal action against the UK

LCG: EU legal action against the UK

11 september 2020

Europa Verenigd Koninkrijk
Europa Engeland.jpg

EUR/GBP has touched a 5-month high on the indication the EU might take legal action against the UK

Tech stocks took another tumble in a sign the rout may only be just getting started. Apple lost another 3% after reversing gains

Markets

Wall Street plunged Thursday as big tech gave up early-day gains and signs of slowdown in the labor market raised concerns about the strength of the recovery at a time when Congressional efforts to make progress on a stimulus package failed to win enough votes to proceed. The Dow Jones fell 1.56% while the Nasdaq lost 2%. In a sign that big tech could be under threat, Apple pared gains to close nearly 3% lower.

The other FANMGs ended in negative territory as well. Energy also led the pace downward, as oil prices slipped after US inventories unexpectedly rose last week, renewing worries about the strength of the demand.

In Europe, the cable had its weakest day in 6 months on Brexit concerns. The dollar spiked as stocks weakened while US Treasuries were bid. Gold was hurt due to investors facing margin calls. Overnight, Asia-ex Japan equities were slightly down at the opening while the Nikkei 225 was up 0.2%.

Day Ahead

This latest round of Brexit talks conclude today and UK GDP is released so a standout market to watch is the euro-pound exchange rate which has jumped to 5-month highs.

It was always going to happen when there has been literally on progress toward a deal; Brexit has got nasty again! Reports suggest the EU may soon as early as today bring about legal action against the UK.

EUR/GBP jumped above 0.92 to its highest since the market crash in March on a double whammy of a hawkish ECB and the quickly souring Brexit situation.EU lawyers believe that just by tabling the draft ‘internal markets bill’ the UK is in violation of the Withdrawal Agreement and may initiate infringement proceedings if the bill is adopted- according to an EU legal option leaked to the Guardian.

Elsewhere UK GDP is expected to have grown by 6.7%, showing an ongoing but slowing recovery in the economy. Manufacturing too is expected to have grown 5% on the month but that still leaves it down 11% from last year.

US consumer price inflation could be one to watch in the context of the new Fed policy of allowing periods of higher inflation. CPI is expected at 1.2% in August, up from 1% in July with core prices forecast to be up 1.6%.

Kroger, the biggest US supermarket chain reports earnings for the past quarter. It has been a consumer staples favourite during lockdown with sales spiking 11% last quarter. This time sales growth is expected to moderate to 5%. Walmart recently announced its membership scheme and investors may want to hear similar growth plans from Kroger to keep the shares bid.

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