October 4, 2021

“With the loss of advantage in the vaccine race, Sterling is still nursing losses from last week’s sharp drawdown caused by a sour outlook and the risk of both higher rates and inflation. The dollar has also lost some positions since last week’s highs but the renewed concerns about China’s property sector and looming US labour data is putting investors in a cautious mood, which could benefit the safe-haven greenback.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The US is moving closer to its first-ever default, with neither political party in Washington yet signaling it’s ready to back down from a partisan showdown on the federal debt limit. Democratic Leader Chuck Schumer plans another vote as early as Monday on a measure passed by the House to suspend the federal government’s legal debt limit until December 2022. Democrats, working to unite around a far-reaching social policy and climate bill, are weighing two different approaches to reduce its overall cost: eliminating proposed programs entirely or cutting their duration.

Rishi Sunak will on Monday set aside £500m to help UK-based people find jobs, as the government grapples with a post-Brexit “period of adjustment” that has seen acute labour shortages in some sectors. Speaking at the start of a Conservative conference in Manchester overshadowed by fuel shortages and warnings of Christmas supply disruption, Sunak will insist the government has a plan to bolster the workforce. The £500m package of support — targeted at those leaving the furlough scheme and older workers — comes after prime minister Boris Johnson refused to fill labour market holes by pulling “the big lever marked uncontrolled immigration”.

GBP

Sterling is stronger versus the dollar and weaker against the euro this morning. A US private equity group, Clayton, Dubilier & Rice, has won an auction for the British supermarket Morrisons with a £7bn bid. Elsewhere, professional services firms in the UK have warned of growing “white collar” labour shortages as businesses fight it out for top talent amid economic recovery. The UK accounting regulator is under pressure to disclose the full findings of its routine inspections of large company audits to protect shareholders and other stakeholders who could lose out if financial statements are misleading.

EUR

The euro is higher against most major currencies overnight. Europe’s escalating energy price crisis will be the focus of attention today in Luxembourg when eurozone finance ministers discuss how surging electricity and gas prices could strain government coffers and scupper the EU’s nascent economic recovery. The EU’s southern and eastern countries have called on Brussels to help alleviate the pressure on their struggling households, demanding the European Commission come up new emergency funds and provide explicit support for national spending measures to protect consumers.

USD

The dollar is lower against most majors in the early morning trade. California officials were trying to limit damage from a major oil spill off the coast of Orange County on Sunday, as oil reached beaches and threatened wetlands south of Los Angeles. The spill of an estimated 126,000 gallons from an oil-processing platform about 5 miles offshore extended from Newport Beach to Huntington Beach, a distance of roughly 6 miles. A transformed Supreme Court, which is dominated by six Republican appointees, returns to the bench on Monday to start a term in which it will consider eliminating the constitutional right to abortion, vastly expanding gun rights and further chipping away at the wall separating church and state.

Markets

Japanese and Hong Kong shares dropped alongside contracts on the S&P 500. Earlier gains vanished after trading of Evergrande shares was suspended in Hong Kong, along with those of its property management arm, amid reports of a unit stake sale. Mainland Chinese markets are closed through Thursday for the Golden Week holidays. Australian shares bucked the trend, and European futures were steady. Treasuries fluctuated, with 10-year yields trading around 1.46%. The S&P 500 closed higher Friday after promising results for a Covid-19 pill and positive manufacturing data triggered a rally in companies that stand to benefit from an economic reopening.

Main Economic Data/Central Banks/Government (All Times CET)

8:30 a.m.: Switzerland Sept. CPI, Aug. retail sales

9:00 a.m.: Spain Sept. unemployment change

9:00 a.m.: Turkey Sept. CPI

9:00 a.m.: Norges Bank Governor Olsen speaks

9:30 a.m.: ECB’s Guindos speaks

10:30 a.m.: Euro-area Oct. Sentix investor confidence

11:00 a.m.: Norway to sell bills

11:30 a.m.: Germany, Netherlands to sell bills

1:35 p.m.: ECB’s Makhlouf speaks

2:00 p.m.: BOE’s Ramsden & Carney speak

2:50 p.m.: France to sell bills

OPEC+ meets to review output

U.K. unveils job funding plan

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