August 4, 2022

“The US dollar clung onto recent gains this morning, on account of proposals by the Federal Reserve to slow the pace of rate hikes. Meanwhile, sterling is flat as investors remain on the side-lines ahead of a 50-bps hike rate decision by the Bank of England.”

Tim Hallinan – Trading Director

Main Headlines

Chinese officials summoned US Ambassador Nicholas Burns in the middle of the night for a meeting to protest Speaker Nancy Pelosi’s trip to Taiwan. Burns was summoned to appear by Chinese Vice Foreign Minister Xie Feng, who is specifically in charge of managing China’s relationship with the United States. Pelosi’s visit infuriated Beijing, who repeatedly warned Pelosi not to make a stop there during her South Asia tour. Chinese officials called the visit a ‘violation of the one-China principle.’ In the summons, Xie stressed the ‘nature of Pelosi’s visit is extremely vicious and the consequence is very grave.

The Bank of England is expected to raise interest rates by the most since 1995 today, even as the risks of a recession mount, in an attempt to stop a surge in inflation from becoming embedded in Britain’s economy. Most investors and economists predict the BoE will increase its benchmark rate by half a percentage point to 1.75%, its highest level since late 2008 at the start of the global financial crisis, when it announces its decision at 1100 GMT. According to the Resolution Foundation think-tank, Britain’s main inflation rate has soared to 9.4% and could hit 15% in early 2023.

GBP

Sterling is well bid against most major currencies overnight. Britain’s energy market regulator Ofgem said it would review a price cap on consumer bills every quarter rather than twice a year and warned that customers face a challenging winter ahead amid volatility in the global energy market. Retailer Next, a mainstay of Britain’s shopping streets, defied the economic gloom on Thursday to lift its full-year sales and profit forecasts after warm weather in June and July spurred better-than-expected trade. Northern Ireland’s Democratic Unionist party has ruled out returning to the region’s power-sharing institutions until after a new UK prime minister is chosen next month.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Glencore has posted record interim profit, more than doubling its earnings in the first six months of the year, as disruption to commodity markets driven by the Ukraine war led to soaring prices for its raw materials, particularly coal. Brussels wants Irish fishermen to stop commercial fishing and to scrap their vessels. The EU is offering them compensation from a pot totalling £67million (€80million). France is to abolish its €138-a-year TV licence fee in a bid to help ease the cost-of-living crisis. President Emmanuel Macron had promised to scrap the fee during his election campaign, and the Senate has now backed the plan.

USD

The dollar is weaker than most major currencies in the early morning trade. Oil prices rose on this morning as supply concerns triggered a rebound from multi-month lows plumbed in the previous session after US data signalled weak fuel demand. The US Senate delivered near-unanimous bipartisan approval to NATO membership for Finland and Sweden yesterday, calling expansion of the western defensive bloc a “slam-dunk” for US national security and a day of reckoning for Vladimir Putin. Joe Rogan slammed President Joe Biden for denying that the US is in a recession after two consecutive quarters of negative growth. Rogan, 54, claimed the Biden Administration was trying to cover up the recession in order to make themselves look good.

Markets

Stocks held modest gains this morning as investors assessed the corporate profit outlook, while wagers on further Federal Reserve interest-rate hikes lifted Treasury yields. Early gains in the Stoxx Europe 600 Index were led by retailers, leisure, and technology firms. MSCI Inc.’s Asia-Pacific share gauge added about 0.5%, helped by a climb in Chinese tech companies propelled by Alibaba Group Holding Ltd. ahead of its quarterly results. US futures were little changed. Earnings, surprise US service-sector growth and easing jitters over US-China ties propelled Wall Street equities yesterday. But a global wave of monetary tightening also hangs over the outlook. Treasuries slipped, taking the US 10-year yield to 2.72%. Oil hovered near $90 a barrel, hampered by demand worries. Gold advanced and Bitcoin oscillated near $23,000.

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

8:00 a.m.: Germany June factory orders
9:00 a.m.: Hungary one-week deposit rate
10:00 a.m.: ECB publishes economic bulletin
12:00 p.m.: Ireland July unemployment rate
1:00 p.m.: BOE rate decision
1:30 p.m.: BOE’s Bailey speaks
2:30 p.m.: Czech Republic repurchase rate
2:30 p.m.: US weekly jobless claims, June trade balance
3:00 p.m.: BOE decision maker panel survey
3:45 p.m.: Czech National Bank briefing
UK Tory leadership debate between Liz Truss and Rishi Sunak, on Sky News

Corporate Events

Earnings include Merck KGaA, Glencore, Bayer, Adidas, Rolls-Royce, Alibaba

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.