October 22, 2021

“Developer China Evergrande Group pulled back from the brink of default, which aided risk sentiment and extended the dollar decline. The BoE executives are talking the markets down after the British pound hit a month peak earlier in the week, to which it had been carried by growing expectations of an interest rate hike to combat rising inflationary pressures.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The Federal Reserve has adopted new rules banning its policymakers and senior staff from buying individual shares and a string of other investments, as the US central bank tries to stamp out a growing furore over trading by top officials. In a statement on Thursday, the Fed said its senior officials would be limited to “purchasing diversified investment vehicles, like mutual funds”. The new rules are being introduced after questionable financial trades last year led to the resignations in September of Eric Rosengren, the president of the Federal Reserve Bank of Boston, and Robert Kaplan, the president of Dallas Fed.

The Bank of England’s chief economist revealed that a decision about a rate increase next month – widely anticipated by financial markets – is live and “finely balanced.” The hawkish-leaning monetary policy committee member Huw Pill told the Financial Times that UK inflation is likely to rise “close to or even slightly above 5 per cent” early next year, which would be “a very uncomfortable place for a central bank with an inflation target of 2 per cent.” Pill advised traders not to get too engrossed in the exact timing of any rate rise, urging them to look at the core underlying trends in the UK economy to see that they no longer needed rates at the historic low of 0.1 per cent.

GBP

Sterling is weaker against the euro and unchanged against the dollar this morning. UK retail sales fell unexpectedly for a fifth month as consumer confidence plunged, adding to evidence that the economic recovery is losing momentum. The volume of goods sold in stores and online fell 0.2% last month, the Office for National Statistics said on Friday. Economists had expected an increase of 0.6%. Meanwhile, consumer confidence dropped to the lowest level since the last lockdown and a near-record share of manufacturers reported material and labour shortages, according to the GfK index.

EUR

The euro is higher versus most major currencies overnight. Economists believe the European Central Bank will increase the pace of their regular bond-buying program next year and make it more flexible to be able to better address market stress. EU leaders today are set to discuss the bloc’s digital agenda, just weeks ahead of a proposed update to the competition rules that will also have an impact on tech companies. The point of today’s discussion is to give a nudge to the stalled regulation, bogged down in internal quarrels within the European parliament and among member states.

USD

The dollar is weaker against most majors in the early morning trade. Biden vowed to defend Taiwan from Chinese military action, in comments that contradicted US policy to maintain an ambiguous stance. The US has agreed to drop the threat of trade tariffs against five European countries over their digital service taxes on big tech groups such as Amazon and Facebook, in a move designed to make it easier for countries to implement a groundbreaking deal to reform global corporate taxes. The 10-year “break-even” US inflation rate rose to 2.62 per cent on Thursday, its highest level since September 2012 and above the Federal Reserve’s long-run inflation target of 2 per cent.

Markets

Asian stocks were steady Friday. Rallies in China’s technology equities and property shares were among the more notable moves. Local media said Evergrande paid a dollar-bond coupon before a weekend deadline, easing concerns about possible contagion from any default by the firm. Chinese junk bonds and the Australian dollar climbed. The S&P 500 edged up to a record overnight but the mood soured after the cash session when Snap Inc. – owner of the Snapchat app – tumbled on a tempered earnings outlook, hurting other technology shares in late trading. Nasdaq 100 futures retreated, S&P 500 contracts were little changed and European ones advanced.

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

8:00 a.m.: U.K. Sept. retail sales

9:00 a.m.: ECB’s Villeroy speaks

9:15 a.m.: France Oct. manufacturing, services and composite PMI

9:30 a.m.: Germany Oct. manufacturing, services and composite PMI

10:00 a.m.: Riksbank’s Ohlsson speaks

10:00 a.m.: Euro-area Oct. manufacturing, services and composite PMI

10:30 a.m.: U.K. Oct. manufacturing, services and composite PMI

12:30 p.m.: Russia central bank decides key rate

2:00 p.m.: Ukraine industrial production

3:00 p.m.: Bank of Italy releases quarterly economic bulletin

7:00 p.m.: Baker Hughes U.S. rig count

ECB survey of professional economic forecasters

S&P updates sovereign ratings for Italy, Greece, Turkey and UK

Corporate Events

Earnings include American Express, Sika Hexpol, Honeywell, Carter’s, China Merchants Bank, HCA Holdings, Reliance Industries, Tata Global Beverages, Saab, Gentex Corp, Steel Authority of India, Schlumberger

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