August 25, 2022

“All eyes are on Jerome Powell’s speech at Jackson Hole later this week to see whether the Fed would opt for a more hawkish tone next month. The greenback weakened against most major currencies overnight, particularly against the euro which recovered back above parity – the weakening of the safe haven is likely due to a temporary easing of global recession concerns.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Joe Biden’s administration will cancel $10,000 in student loan repayments for millions of Americans, in a move that has pleased progressives but threatens to push up inflation. The US president announced the decision yesterday, following months of deliberations over the exact structure of the debt forgiveness scheme. Biden paused most student debt repayments during the coronavirus pandemic but has been under pressure from many on the left of his party to cancel a large chunk, if not all of it, outright. However, some economists have warned that doing so could add further fuel to the country’s high inflation rates.

British steel producers will have to pay a 25 per cent tariff to sell certain construction products into Northern Ireland after EU quotas for global imports were exhausted earlier than expected. Steel producers and stockholders were informed of the new tariff on Wednesday in a notice from HM Revenue & Customs, prompting a fierce backlash from industry. The prospect of UK companies paying tariffs to send steel within the UK’s own internal market is hugely politically sensitive and is likely to further anger the region’s Unionist community which has rejected the protocol because it divides the United Kingdom.

GBP

Sterling is well bid against most major currencies overnight. More than half of UK households’ risk being pushed into energy poverty this winter by soaring bills that threaten suppliers. The crisis could have a bigger impact on households than the 2008 financial crisis, according to consultancy Baringa Partners. The UK government will hold urgent talks with meat and farming groups today after CF Industries, the US fertiliser group said it would close its Billingham plant in north-east England. UK imports of goods from Russia have collapsed to a record low as a result of economic sanctions over the war in Ukraine.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. The chief of the ECB said the bank needs to take climate change into account when making decisions as it has a clear impact, especially on inflation. Hedge funds have lined up the biggest bet against Italian government bonds since the global financial crisis on rising concerns over political turmoil in Rome and the country’s dependence on Russian gas imports. The French transport minister called for an investigation into whether French oil major TotalEnergies was involved in supplying jet fuel to the Russian military.

USD

​The dollar is weaker than most major currencies in the early morning trade. Bankers and lawyers on Wall Street are hunting for ways to help companies buy back shares next year without having to pay millions of dollars in extra tax. The US will send nearly $3bn in new weapons and equipment to Ukraine in the largest single tranche of security assistance given by Washington since Russia’s invasion of Ukraine began, aimed at sustaining Kyiv’s forces through a protracted conflict. California is expected to ban the sale of new gasoline vehicles by 2035 as the state takes dramatic steps to reduce emissions and combat the climate emergency.

Markets

Stocks rose today as China’s stimulus and better-than-expected data from Germany steadied some nerves in the anxious wait for a key speech by Federal Reserve Chair Jerome Powell. Treasury yields and dollar gauge dipped. Energy stocks were among the biggest gainers in Europe, while US futures pushed higher in the wake of positive closes for the S&P 500 and Nasdaq 100. Sentiment was boosted after China stepped up stimulus with a further 1 trillion yuan ($146 billion) of measures and Germany’s economy proved more resilient than initially thought in the second quarter. Still, traders expect markets to remain volatile as they look to Powell’s comments due Friday for clues on the pace of US monetary tightening.

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

10:00 a.m.: Bank of Finland’s Valimaki speaks
10:00 a.m.: Germany Aug. Ifo Survey
1:30 p.m.: ECB publishes account of July policy meeting
2:00 p.m.: National Bank of Poland publishes minutes of rate meeting
3:00 p.m.: Belgium Aug. business confidence

Corporate Events

Tesla starts trading on stock split-adjusted basis
Earnings include Delivery Hero, Farfetch, Peloton, Dollar Tree, Abercrombie & Fitch, VMware, Marvell, Dell

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