August 12, 2021

“The softer inflation data came as a relief for market participants in the short term and caused a brief retreat of the dollar, but it also meant that policy normalisation could be somewhat further away than anticipated. The condition of the labour market remains the main focus.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Inflation in the US steadied at a 13-year high in July, not increasing enough to provide major relief from the cost increases weighing on sentiment and driving policy debate, while month-on-month gains moderated slightly. The consumer price index published by the Bureau of Labor Statistics rose 5.4 per cent in July from a year ago, surpassing the 5.3 per cent expected by economists. That is in line with the 5.4 per cent increase reported in June, which was the largest such surge since 2008. Price pressures, even with volatile items such as food and energy stripped out, have eased little.

Britain’s economy surged forward in the second quarter, growing 4.8 per cent following the easing of coronavirus restrictions and the progress of the country’s vaccination programme. Gross domestic product rose 1%, more than the 0.8% predicted by economists. A sharp recovery from the worst recession in three centuries has left the economy 2.2% smaller than before coronavirus lockdowns, the ONS said. Statisticians said health services and a resurgence in hospitality were the main drivers of growth in June. Education surged during the quarter after schools reopened.

GBP

Sterling is weaker versus most major currencies this morning. The UK competition regulator has backed a move by Ofgem, the government energy governing body, to slash returns for investors in monopoly energy networks in Britain, despite appeals from companies including National Grid, ScottishPower, SSE and Cadent. Funds invested in UK equities recorded £2.2bn in outflows during the first half of the year, according to data from the Investment Association. The slump came as net retail fund sales jumped to £24bn in the best start to the year for the sector since 2017.

EUR

The euro is mostly unchanged against the pound and weaker against the dollar overnight. Poland’s ruling Law and Justice party on Wednesday pushed through a media reform bill that critics say is aimed at undermining a US-owned TV station that is critical of the government. Washington has warned Warsaw not to proceed with the legislation, which proposes only allowing companies majority-owned by entities from the European Economic Area to hold broadcast licenses. Brussels has increased the amount it anticipates spending on jet flights for top officials to €13.5 million.

USD

The dollar is higher against most majors in the early morning trade. The White House has called on Opec to boost oil production in an effort to curb high petrol prices that Biden administration officials say “risk harming the ongoing global recovery”. Mary Daly, president of the San Francisco Fed, said in an interview that tapering of asset purchases could start as soon as this year. Meanwhile, Janet Yellen is weighing a trip to China in the coming months that would be her first as US Treasury secretary, as the Biden administration engages in a broad review of policy toward the Asian power.

Markets

MSCI Inc.’s gauge of Asia-Pacific equities was set for its first retreat this week, with Japan steady but Hong Kong declining. U.S. and European contracts were little changed after the S&P 500 hit an all-time high and the tech-heavy Nasdaq 100 fell amid a rotation to cyclical shares. Ten-year Treasuries pared gains spurred by a strong auction and a U.S. inflation report that lent some support to the view that price pressures are transitory. China released a five-year plan calling for greater business regulation as Beijing pursues a crackdown that has shaken investors. One of the latest steps is stepped up scrutiny of insurance technology platforms. The central bank also faces calls to cut interest rates as virus outbreaks hamper the economy. Credit in China expanded last month at the slowest pace since February 2020.

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

8:00 a.m.: U.K. 2Q GDP
8:00 a.m.: U.K. 2Q total business investment
8:00 a.m.: U.K. June industrial production, trade balance
8:00 a.m.: Sweden Prospera Swedish Inflation Expectations Survey
10:00 a.m.: Italy June trade balance
10:00 a.m.: Norges Bank 2Q bank lending survey
11:00 a.m.: Euro-area June industrial output
12:00 p.m.: Ireland July CPI
2:30 p.m.: U.S. initial jobless claims
Italy June trade balance

Corporate Events

Earnings include Disney, Deutsche Telekom, Airbnb, Brookfield Asset, Orsted, Zurich Insurance, Henkel, Hapag, RWE, Straumann, Aviva, Aegon, NN Group

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