August 3, 2022

“This week the Bank of England will hold its latest monetary policy meeting. Markets are currently pricing in a 70% chance of a further 50bps rate hike, an increase which three of the nine monetary policy committee members voted for in June”

Sam Cornford, Partner – Head of Trading

Main Headlines

China has threatened to hold major military exercises around Taiwan this week in an angry riposte to US House Speaker Nancy Pelosi becoming the highest-profile American official to visit the island in a quarter of a century. Shortly after Pelosi landed in Taipei late yesterday, China announced that the People’s Liberation Army would hold live-fire drills, exercises using live ammunition, at several points around Taiwan, including off the east coast where the PLA has become much more active over the past year. The Chinese warning comes after the PLA earlier this week staged air and sea manoeuvres in the South China Sea and the Taiwan Strait, as well as a string of military drills in other coastal areas, before Pelosi flew to Taiwan.

According to new forecasts by the National Institute of Economic and Social Research, the UK economy is sliding into recession, with no let-up in sight in a cost-of-living crisis that will leave more than 5mn households with their savings exhausted by 2024. The think-tank expects GDP to fall “slightly” over the second half of 2022 and the first quarter of 2023 but said today that the risks of a deeper recession were growing. Niesr called on the next prime minister to step up direct support for the poorest households, rather than prioritising tax cuts, arguing that even if inflation slowed next year, food and energy prices were set to remain at levels that would cause ongoing hardship for many people into 2024.

GBP

Sterling is well bid against most major currencies overnight. Liz Truss’s Tory leadership campaign suffered a serious setback on Tuesday when she was forced to abandon her plan to cut the pay of public sector workers living in poorer areas of Britain. A record number of migrants attempted to make the dangerous journey across the English Channel on Monday, casting fresh doubts over government efforts to tighten up the border and “break the business model” of people smugglers. Britain’s competition regulator said on Wednesday it has provisionally cleared NortonLifeLock’s $8.6 billion purchase of rival Avast Plc, the final hurdle to the two firms creating a consumer security software giant.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. The European Union called on Wednesday for tensions over US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan to be resolved through dialogue and for communication channels with China to be kept open to avoid miscalculation. Siemens Energy said a Nord Stream 1 gas turbine that has become the focus of a deepening energy row with Russia is in Germany after undergoing maintenance in Canada, and German Chancellor Olaf Scholz will visit it today. France will have filled out 100 percent of its strategic gas reserves by November 1, as European countries prepare for fewer energy supplies coming through from Russia.

USD

The dollar is weaker than most major currencies in the early morning trade. The US economy has shrunk for the second quarter in a row, a milestone that in many countries would be considered an economic recession. As the US central bank raises borrowing costs quickly to try to cool the economy and ease price pressures, fears are rising that a recession is coming, if it has not officially started already. The US imposed sanctions on Russian president Vladimir Putin’s reputed girlfriend on Tuesday alongside other members of the Moscow elite and businesses that it says are enabling the war in Ukraine.

Markets

Stocks steadied this morning as some of the investor anxiety over tense US-China ties eased, while Treasuries pared a slide sparked by hawkish Federal Reserve comments. Europe’s Stoxx 600 was little changed as investors assessed signs of resilience in the second-quarter earnings season. Personal care and healthcare stocks underperformed, while insurance and tech shares advanced. S&P 500 and Nasdaq 100 futures were steady. MSCI Inc.’s Asia-Pacific equity index slipped 0.2% in a mixed day that included a jump in Chinese technology shares. The yen and a dollar gauge were little changed. The two-year Treasury yield remained above 3% following a selloff in bonds yesterday sparked by Fed officials indicating the central bank has some way to go to curb inflation. That lead traders to trim wagers on policy easing in 2023.

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

8:00 a.m.: Russia July S&P Global services, composite PMI
8:00 a.m.: Germany June trade balance
8:30 a.m.: Switzerland July CPI
9:00 a.m.: Turkey July CPI, PPI
9:15 a.m.: Spain July S&P Global services, composite PMI
9:45 a.m.: Italy July S&P Global services, composite PMI
9:50 a.m: France July S&P Global services, composite PMI
9:55 a.m.: Germany July S&P Global services, composite PMI
10:00 a.m.: Euro-area July S&P Global services, composite PMI
10:00 a.m.: Italy June retail sales
10:30 a.m.: UK July S&P Global/CIPS services, composite PMI
11:00 a.m.: Euro-area June PPI
11:00 a.m.: Euro-area June retail sales
OPEC+ meeting on output

Corporate Events

Earnings include Siemens Healthineers, AP Moller-Maersk, Vonovia, Sampo Oyj, Telecom Italia

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