August 11, 2022

“The greenback fell by over 1% in the aftermath of US CPI inflation report release for July – headline inflation rate fell by 8.5% against a forecast pointing 8.7%. Yet, the currency recovered some ground in overnight trading, largely encouraged by some hawkish comments made by the Fed.”

Tim Hallinan – Trading Director

Main Headlines

The average price of US retail gasoline fell below $4 per gallon on Thursday for the first time in months, giving some relief to drivers in the world’s largest consumer of the fuel. The national average price for regular unleaded gas fell to $3.990 a gallon on Aug. 11, according to the American Automobile Association. Gasoline prices peaked at a record $5.02 in June. That high-cost curbed spending, and prices have also dropped as market fears of severe restrictions on supply have ebbed since Russia first invaded Ukraine in February. The latest price drop may help President Joe Biden’s Administration and Democrats in Congress as midterm elections approach.

Britain’s electricity generators will face pressure from ministers to invest their “extraordinary profits” in new green energy projects, rather than paying out the windfall to shareholders. Some have made huge profits from surging electricity prices that have risen in line with the soaring cost of gas, even if the power they produce comes from renewables or nuclear energy. Chancellor Nadhim Zahawi will keep alive the prospect of hitting the generators with a new windfall tax if they do not invest their profits in renewable energy schemes. The chancellor has instructed officials to draw up a list of policy alternatives for whoever becomes Tory party leader and therefore UK prime minister on September 5.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. Expectations for activity in Britain’s housing market have dried up quickly thanks to a worsening economic outlook and rising interest rates, an industry survey showed this morning. Liz Truss’s thoughts about how to manage the BOE are adding to a mounting list of threats to the pound and UK government bonds. The worry is that if she becomes PM, Truss will upend a three-decade-long focus on fighting inflation and tell policy makers to use tools that were discredited in the 1980s. A four-day “extreme heat” warning came into force in parts of England and Wales today, with temperatures poised to exceed 35 Celsius.

EUR

Euro is well bid against most major currencies overnight. Soaring oil use for power generation in Europe and the Middle East will boost crude consumption for the rest of the year, the International Energy Agency said today, as it increased its global demand forecast despite signs of a wider economic slowdown. Benchmark German power prices rose to a record, with an ongoing heat wave and drought set to severely restrict one of Europe’s key waterways for shipping energy supplies. More than 1,000 firefighters backed by water-bombing aircraft battled a wildfire near France’s wine-growing heartland of Bordeaux.

USD

The dollar is weaker than most major currencies in the early morning trade. The US consumer price index rose by 8.5 per cent year on year in July, a slower annual increase compared with June, as inflationary pressures eased on the back of lower petrol prices. US Treasury Secretary Janet Yellen told the Internal Revenue Service yesterday that if the Inflation Reduction Act became law additional IRS resources should not be used to increase audit rates on taxpayers making under $400,000 a year. US Vice President Kamala Harris received frequent applause during an address at the United Steelworkers convention, promoting the administration’s infrastructure investment and promising support for labour unions.

Markets

Stocks extended a rally Thursday following softer-than-expected US inflation data, which stoked speculation that the Federal Reserve could pivot to a shallower pace of interest-rate hikes. Europe’s Stoxx 600 Index advanced for a second day, after surging to the highest in two months following the CPI report, with technology and construction stocks outperforming. US futures rose after the S&P 500 hit a three-month high and the Nasdaq 100 pulled 20% above a June low. The dollar steadied after a retreat a day earlier that was the biggest since the onset of the pandemic. Short-term Treasury yields held a drop on investors scaled-back expectations of how aggressively the Fed will have to tighten monetary policy.

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

8:00 a.m.: Romania July CPI
9:00 a.m.: Turkey June current account
10:00 a.m.: Norges Bank 2Q survey of bank lending
12:00 p.m.: Ireland July CPI
2:30 p.m.: US PPI, initial jobless claims
3:00 p.m.: Russia Aug. 5 gold and forex reserve
Germany June current account balance
UK Tory Party leadership holds hustings in Cheltenham
Denmark holds Ukraine conference
IEA publishes monthly oil market report
OPEC publishes monthly oil market report

Corporate Events

Earnings include Brookfield, Zurich Insurance, Hapag-Lloyd, China Mobile, SMIC

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