August 5, 2022

“The dollar edged higher this morning ahead of US jobs data, while sterling eased only a day after the Bank of England’s decision to raise rates by 50-bps.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Democratic US Senator Kyrsten Sinema said on Thursday she agreed to “move forward” on a $430 billion drug pricing, energy, and tax bill, subject to a Senate arbiter’s approval of the bill, which Democrats intend to pass over Republican objections. Senate Majority Leader Chuck Schumer said earlier yesterday that the chamber would convene on Saturday to vote on a motion to proceed and then begin debate on the bill. The bill known as the Inflation Reduction Act, introduced last week by Schumer and Democratic Senator Joe Manchin, is a key priority for Democrats and President Joe Biden ahead of November’s election battle for control of the US Congress. The act will help people save money on prescription drugs and health premiums, Biden said in a statement on Thursday.

Liz Truss, the Tory leadership frontrunner, claimed on Thursday that she can avert a recession if she becomes prime minister, on the day the Bank of England warned that Britain was facing a protracted downturn. Truss has promised immediate tax cuts if she wins the contest and told a Sky News leadership debate that the BoE’s projected downturn, which could last throughout next year, could yet be averted. Truss promised to reverse plans by Sunak, the former chancellor, to increase corporation tax from 19 per cent to 25 per cent, while also scrapping green levies on energy bills and a national insurance rise. But Sunak replied that Truss’s plans would make inflation worse. He said, “the lights on the economy are flashing red and the root cause is inflation.”

GBP

Sterling is stronger against euro and weaker against the dollar this morning. House prices in Britain fell the first time in more than a year in July in monthly terms and the market is likely to weaken further as interest rates go up and the cost-of-living squeeze tightens. The UK energy regulator’s decision to pass on rises in wholesale gas and electricity prices faster to consumers has been attacked by fuel poverty campaigners as industry experts warn they could drive up household bills to more than £4,200. The London Stock Exchange Group said that costs and savings targets for integrating data company Refinitiv were on track and that it was launching a 750-million-pound share buy-back. Investors are closely monitoring the integration of Refinitiv, after outages and concerns over the amount of money being spent to mesh two different cultures and systems.

EUR

Euro is weaker than most major currencies in the early morning trade. Italy approved a new aid package worth around 17 billion euros to help shield firms and families from surging energy costs and rising consumer prices. Meanwhile, Prime Minister Mario Draghi’s resignation last month has paved the way to early elections on September 25, with surveys suggesting the conservative alliance led by far-right Brothers of Italy is well placed to win a parliamentary majority. Three grain ships left Ukrainian ports on Friday under a safe passage deal while the first inbound cargo vessel since Russia’s invasion was due in Ukraine later in the day to load, and Kyiv called the pact to be extended to other goods such as metals.

USD

The dollar is well bid against most major currencies overnight. The number of people applying for unemployment aid in the US reached the highest level in more than six months last week, amid growing signs the historically tight labour market could be cooling. In the week to July 30, there were 260,000 initial jobless claims on a seasonally adjusted basis. The US government has declared a public health emergency in response to the spread of monkeypox in a move that will provide federal health agencies with additional funds and powers to combat the virus. China fired 11 ballistic missiles into waters close to ports in Taiwan and conducted other military drills on Thursday, in an attempt to punish the country for hosting a visit by US House Speaker Nancy Pelosi.

Markets

US equity futures ticked higher today, helped by technology shares, as investors brace for the monthly US jobs report that’s likely to enliven the recession debate. Stocks in Europe were little changed. Nasdaq 100 futures advanced, signalling the underlying gauge could touch a 20% gain from its June low and meet the technical definition of a bull market. S&P 500 futures posted modest gains. The Stoxx Europe 600 Index struggled for direction, dragged down by media firms and insurers. Investors are flocking back to defensive shares, especially tech stocks, as falling bond yields bolster the appeal of long-duration assets. The 10-year Treasury yield was steady at about 2.69% after sinking from an 11-year high of almost 3.5%. The inversion between two-year and 10-year yields indicates worries about a recession as monetary policy tightens.

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

8:00 a.m.: Germany June industrial production
8:00 a.m.: Sweden July budget balance
8:45 a.m.: France June trade balance, industrial production
9:00 a.m.: Spain June industrial production
9:00 a.m.: Hungary June industrial production
10:00 a.m.: Italy June industrial production
1:15 p.m.: BOE’s Pill speaks
2:30 p.m.: US July non-farm payrolls
7:00 p.m.: Baker Hughes US rig count
Bank of Italy report on balance-sheet aggregates
Romania interest rate decision
Vladimir Putin to meet with Recep Tayyip Erdogan in Sochi, Russia

Corporate Events

Earnings include Allianz, Adient, Cinemark, Goodyear

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