August 8, 2022

“Friday’s stronger than expected US non-farm payrolls, 528,000 in July against expectations of 250,000 added to the case for more Fed monetary tightening. Trades are looking to inflation numbers due this week for indications on the policy path.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US Senate has passed Joe Biden’s flagship economic package after a marathon overnight voting session that handed the president a major political victory just months before the midterm elections. The climate, tax, and healthcare bill, known as the Inflation Reduction Act, passed by a margin of 51 to 50, with voting split along party lines and vice-president Kamala Harris casting the deciding vote in an evenly divided Senate. The bill still needs to pass the House of Representatives and be signed by the president before it becomes law, but its passage by the Senate marks the biggest in a string of recent wins for Biden as he aims to defend slim majorities in both chambers of Congress in November.

Liz Truss, the Tory leadership favourite, is under pressure to promise more help for poor households facing a crushing cost of living crisis this autumn, after expressing her preference for tax cuts over “handouts.” Both Truss, foreign secretary, and her rival Rishi Sunak, the former chancellor, have been urged to explain how they would help households through the worst income squeeze in over 60 years and a “financial time-bomb” that is primed to detonate in the autumn. But Truss, the frontrunner to be Britain’s next prime minister, is under most pressure after telling the Financial Times last week that she would “look at what more can be done” but adding: “The way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts.”

GBP

Sterling is well bid against most major currencies overnight. Government plans to axe up to 91,000 civil servants over three years will require deep cuts to public services and cost at least £1bn in redundancy payments, according to a Whitehall review. British financial regulators have failed to tackle risks outside traditional banking and should now develop a comprehensive UK policy instead of waiting for an international agreement, according to a former Bank of England deputy governor. The UK government is to review a £4.2bn foreign takeover of a key part of the country’s gas infrastructure amid increased concerns about energy security. Debt repayments, staff shortages and rising energy bills have pushed almost two-thirds of the UK’s top 100 restaurants into the red.

EUR

Euro is stronger against the dollar and weaker against euro this morning. Hungary hopes to strike a deal with Brussels on blocked EU funds by the end of the year, as it races against the clock to unlock billions that have been frozen over concerns about state-captured institutions and corruption. One of President Vladimir Putin’s closest allies said Russia would achieve its aims in the conflict in Ukraine on its own terms, warning that the West had a long-term plan to destroy Russia. State and federal Lawmakers in Germany are exploring a sweeping set of measures to save energy, from turning off street lights to lowering building temperatures; and they are pleading with the public to cut consumption at home.

USD

The dollar is weaker than most major currencies in the early morning trade. US fuel retailers are fighting the inclusion of a tax credit for sustainable aviation fuel in Democrats’ $430 billion spending bill, arguing SAF is more carbon intense and less efficient than renewable diesel. America’s largest oil and gas producers are keeping a lid on supply, defying calls from the Biden administration to lift output even as soaring fuel prices driven by Russia’s war in Ukraine deliver bumper profits. The Federal Reserve will face more urgency in its fight to cool down the US economy with steep interest rate increases after the latest batch of labour market data showed an unexpected acceleration in jobs gains and strong wage growth.

Markets

European stocks gained this morning and US equity futures climbed as investors assessed prospects of aggressive Federal Reserve interest-rate hikes against a reassuring earnings season. S&P 500 and Nasdaq 100 contracts both rose more than 0.3% after global shares completed a third straight advance last week in a rebound from bear-market lows, helped by resilient company profits. Technology and energy sectors led the advance in Europe’s Stoxx 600 benchmark. Strong US jobs data Friday added to the case for more Fed monetary tightening. That’s pushed up Treasury yields and the dollar. Crude oil climbed above $90 a barrel. Gold struggled to make much progress.

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

7:45 a.m.: Switzerland July unemployment rate
8:00 a.m.: Norway June industrial production
9:00 a.m.: Czech Republic June industrial output
9:00 a.m.: Hungary June trade balance
10:30 a.m.: Euro area August Sentix investor confidence
11:00 a.m.: Greece July CPI
Nuclear deal talks with Iran expected to continue in Vienna

Corporate Events

Earnings include SoftBank, BioNTech, Porsche, Siemens Energy, Tyson

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