August 31, 2022

“All eyes on the flash reading of HICP inflation in the Eurozone for August with the expectation of a more modest increase, edging higher to 9% from 8.9%. The ex-food & energy rate is forecasted to be unchanged at 5.1%. Whether the ECB decides to raise interest rates by 50 or 75 basis points at its policy meeting next week will be heavily influenced by these figures.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The two largest US mortgage lenders are turning up the warmth on their smaller opponents, providing reductions and different incentives to win market share as rising rates of interest have slowed homebuying exercise. The aggressive methods pursued by Rocket Mortgage and United Wholesale Mortgage, the biggest and second-largest US mortgage originators, respectively, come as many lenders are pulling again from the market or going out of enterprise. Rocket is promising homebuyers it’s going to waive closing, appraisal and different refinancing charges if they get hold of a brand-new mortgage and rates of interest drop inside a three-year interval ranging from July.

UK gas prices fell sharply yesterday after reaching new highs late last week, although prices will remain at extremely high levels into the winter. The drop followed a sell-off in Europe on Monday, as UK markets closed for the bank holiday weekend, with UK prices closely following movements in Europe. The European sell-off was triggered by warnings from the EU on Monday that emergency interventions to curb the price of electricity might be needed, with plans to separate it from the rising cost of gas. Meanwhile, the UK government has launched a consultation which could lead to social housing tenants in England being protected from soaring rents through the introduction of a temporary cap.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK households are preparing for soaring electricity prices in coming months as they grapple with a historic cost of living crisis. Some people plan to spend more time in the office to avoid heating their homes during the day. Others say they’ll cook fewer meals. A few intend to stop paying their bills entirely. Meanwhile, Big investors are betting on a fresh surge in UK borrowing costs because of mounting concerns the energy crisis will inflame inflation and trigger further Bank of England rate rises.

EUR

Euro is well bid against most major currencies overnight. European shares edged higher today, supported by strong performances in tech stocks following a three-day selloff, with focus on regional inflation figures due later in the session. The continent-wide STOXX 600 was up 0.4%, as of 07:16 GMT, snapping three consecutive days of losses. But the index was set for a monthly loss of nearly 4%. Gains were also capped as Russia began halting gas flow via a major pipeline to the continent’s largest economy today.

USD

The dollar is stronger against sterling and weaker against euro this morning. Earlier, some hawkish rhetoric from the ECB’s Knot provided some support for euro against the dollar. US Federal Reserve officials yesterday reiterated their support for further interest-rate hikes to quell inflation, with the influential chief of the New York Fed saying the central bank will likely need to get its policy rate “somewhat above” 3.5% and keep it there through the end of 2023. The Fed’s current target range for the benchmark Fed funds rate is 2.25-2.50%. Financial markets are pricing in a steeper increase. Futures contracts tied to the Fed policy reflect trader bets that rates will rise 1.5 percentage points further by year end. There are three more policy-setting meetings this year, including next month’s.

Markets

Stock futures were fractionally higher early today after Wall Street’s losing streak stretched into its third day and endangered the market’s recent summer rebound. Futures tied to the Dow Jones Industrial Average gained 61 points, or 0.19%. The S&P 500 also rose 0.19%, and Nasdaq 100 futures traded 0.34% higher. Investors have sold off heavily since Friday after hawkish remarks from Federal Reserve Chair Jerome Powell. European markets were choppy today, eventually aligning with a negative trend in Asia-Pacific markets overnight and after Wall Street’s losing streak stretched into its third day. The pan-European Stoxx 600 was down 0.5% by mid-morning, having given back opening gains of a similar scale.

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

8:00 a.m.: Germany July import price index
8:30 a.m.: Riksbank’s Breman speaks
8:45 a.m.: France Aug. CPI; July consumer spending
9:00 a.m.: Turkey 2Q GDP
9:55 a.m.: Germany Aug. unemployment
10:00 a.m.: Poland Aug. CPI
10:30 a.m.: Portugal Aug. CPI
11:00 a.m.: Euro-area Aug. CPI
11:00 a.m.: Italy Aug. CPI
2:15 p.m.: US Aug. ADP employment change
4:30 p.m.: EIA US crude oil inventory report

Corporate Events

Earnings include Donaldson, Designer Brands, Five Below, SentinelOne

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