August 10, 2022

“US CPI inflation due out today will likely have a key bearing on whether the FED hikes rates by a further 50bps or 75bps at its next September meeting. Thew headline rate is forecast to fall from 9.1% to 6.1%”

Sam Cornford, Partner – Head of Trading

Main Headlines

Americans may finally be catching a break from relentlessly surging prices if just a slight one even as inflation is expected to remain painfully high for months. Thanks largely to falling gas prices, the government’s inflation report for July is expected to show that prices jumped 8.7% from a year earlier still a sizzling pace but a slowdown from the 9.1% year-over-year figure in June, which was the highest in four decades. The forecast by economists, if it proves correct, would raise hopes that inflation might have peaked and that the run of punishingly higher prices is beginning to ease slightly.

Household energy bills in Britain are predicted to peak at more than £4,400 a year next spring, as ministers draw up “worst-case” plans for a bleak winter that could involve gas shortages and power blackouts. The prospect of soaring energy bills exacerbating the cost-of-living crisis highlights the scale of the problems facing Britain’s next prime minister, either foreign secretary Liz Truss or former chancellor Rishi Sunak. Sunak, who has promised more support for families with their energy bills, on Tuesday repeated his claims that Truss is not prepared to do enough to ease the pain facing poor households.

GBP

Sterling is well bid against most major currencies overnight. British consumer confidence inched up in July after seven straight months of decline, possibly reflecting the introduction of support payments for low-income households. A survey showed that British consumer energy debt is already at an all-time high, with six million households owing an average of 206 pounds to providers, before bills leap in October and again in January. Millions of people in London and the south-east of England face the prospect of a hosepipe ban, as Thames Water became the fourth company to announce restrictions because of unusually hot and dry conditions.

EUR

Euro is weaker than most major currencies in the early morning trade. Norway has drawn up plans to ration electricity exports in a move that has heightened fears of energy shortages in the UK and Europe this winter. The prime ministers of Estonia and Finland have called on the EU to stop issuing tourist visas to Russians in an attempt to open up a new sanctions front following Moscow’s full-scale invasion of Ukraine. Health officials in Europe are discussing whether to follow a move by the United States to stretch out scarce monkeypox vaccine supplies, with the World Health Organization calling for more data.

USD

The dollar is stronger against euro and weaker against sterling this morning. US President Joe Biden has signed a law committing $280bn to high tech manufacturing and scientific research amid fears the country is losing its technological edge to China. Corporations will pay nearly $296 billion more in US federal taxes over the next decade, and middle-income households will see some tax cuts, under the tax-and-climate bill that is likely to become law in the coming days. The US Department of Justice is under pressure to provide a fuller explanation of the FBI’s search of Donald Trump’s Florida estate after the unprecedented raid on a former US president’s home prompted howls of outrage from Republicans

Markets

Stocks and bonds were steady this morning amid caution ahead of US inflation data that will shape investor expectations for further Federal Reserve interest-rate hikes. Europe’s Stoxx 600 erased an early drop, with insurance stocks outperforming and consumer products the biggest laggards. US equity futures pared declines, following a retreat in the S&P 500 for a fourth session after Micron Technology Inc. became the latest chipmaker to warn about slowing demand, fanning economic concerns. The two-year Treasury rate exceeds the 10-year by almost 50 basis points. The inversion, around the deepest since 2000, is viewed as a sign of a looming recession under the Fed’s monetary-tightening campaign to curb inflation.

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

8:00 a.m.: Sweden June industrial orders
8:00 a.m.: Norway July CPI
8:00 a.m.: Denmark July CPI
8:00 a.m.: Germany July CPI
9:00 a.m.: Czech Republic July CPI
10:00 a.m.: Italy July CPI
11:00 a.m.: Italy sells bills
12:00 p.m.: Portugal July CPI
2:30 p.m.: Ukraine July CPI
4:30 p.m.: EIA US oil inventory report
6:00 p.m.: Russia July CPI
6:00 p.m.: BOE’s Pill speaks

Corporate Events

Earnings include Aviva, Brenntag, ABN Amro, Disney

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