August 17, 2022

“Sterling is holding a somewhat firmer tone over the past 24 hours, as data showed inflation climbed to its highest level in more than 40 years – CPI figures, currently pointing at 10.1% in July, are piling pressure on the Bank of England to bring down prices.”

Tim Hallinan – Trading Director

Main Headlines

US President Joe Biden has signed a $740bn climate change, healthcare and tax bill into law, handing the Democratic Party a much-needed win ahead of the November midterm elections. In a signing ceremony at the White House, Biden heralded the Inflation Reduction Act for its record investment towards cutting carbon emissions. The bill includes nearly $370bn meant to encourage a shift away from fossil fuels, although some allege that it does not go nearly far enough. The estimated $740bn package is made up of $440bn in new spending and $300bn towards easing deficits.

UK inflation soared to 10.1% in July, reaching double digits for the first time in 40 years. The CPI figures came in above expectations of 9.8%, and up from 9.4% in June. The Office for National Statistics said that rising food prices made the largest upward contribution to the change in prices from June. Food prices, along with transport and housing, make up the bulk of price rises in the last year, with fuel prices up by 43.7% in the year to July, the highest rate ever recorded. Meanwhile core CPI, which excludes energy, food, alcohol and tobacco, sat at just 6.2%, highlighting where the bulk of price rises originate from.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. UK hospitality businesses have lost nearly 200,000 international workers since the end of 2019, according to an industry survey, as the effects of Brexit and the coronavirus pandemic squeeze the jobs market. Real levels of UK wages fell at the fastest rate for at least 20 years in the second quarter of this year, official figures showed yesterday in data that will provide little comfort that inflation is coming under control. Thames Water, which serves customers in and around the British capital London, announced a ban on customers from using a hosepipe from August 24, citing prolonged dry weather.

EUR

Euro is weaker than most major currencies in the early morning trade. Investors are now more pessimistic about the German economy, worrying that a sharp fall in Russian natural gas supplies and soaring energy prices will plunge the country into recession. Finland will slash the number of visas issued to Russians from September 1, the Finnish foreign ministry said in a statement yesterday, amid a rush of Russian tourists bound for Europe. Italian politician Giorgia Meloni is riding a wave of support that could see her become the country’s first female prime minister and its first far-right leader since World War II.

USD

The dollar is well bid against most major currencies overnight. The Biden administration is weighing Iran’s response to the EU’s proposal aimed at reviving the 2015 nuclear deal. The US has so far refused to comment in detail though a State Department official said the big issues have been “largely settled” and the EU proposal is close to what the US is looking for. For the second year in a row, the US states of Arizona and Nevada will face cuts in the amount of water they can draw from the Colorado River as the Western United States endures an extreme drought, federal officials have announced.

Markets

Stocks from Asia to Europe rallied on optimism over corporate performance and China’s stimulus plans. US index futures, however, were weighed down by concerns over the Federal Reserve’s rate-hike path. September contracts on the S&P 500 Index slipped 0.1% after the equity benchmark posted modest gains yesterday on the back of a rally in retailer stocks. Nasdaq 100 futures were down 0.3% signalling a selloff in technology names will continue. Europe’s Stoxx 600 climbed for a sixth day. The dollar advanced and Treasury yields rose as investors awaited the minutes of the Fed’s last policy meeting for clues on policy makers’ sensitivity to weaker economic data. Signs of peaking inflation as well as a stellar run of corporate performance are supporting gains in US equities.

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

9:30 a.m.: Netherlands 2Q GDP
10:00 a.m.: Poland 2Q GDP
10:30 a.m.: UK House Price Index
11:00 a.m.: Euro-Area 2Q GDP
1:00 p.m.: US Aug. MBA mortgage applicatinos
2:30 p.m.: US July retail sales

Corporate Events

Earnings include Target, Lowe’s, Cisco, Analog Devices, TJX, Bath & Body Works, Synopsis, Amcor, Coloplast

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