December 10, 2021

“Today’s consumer price index reading will set the mood ahead of the Fed’s policy meeting next week. Market participants are expecting inflation to show signs of further increase, and the dollar is benefiting from anticipation of faster taper and sooner interest rate rises. The European Central Bank and the Bank of England are also meeting next week, and neither of them appears likely to raise interest rates, putting pressure on their corresponding currencies against the dollar with the more hawkish Fed.”

Sam Cornford, Partner and Head of Trading 

Main Headlines

A strong economic recovery and persistent labour shortage pushed jobless claims in the US to their lowest level in 52 years last week, just 18 months after the pandemic prompted six million workers to file for unemployment in one week. State unemployment offices received 184,000 initial jobless claims on a seasonally adjusted basis in the week ending December 4. Economists have cautioned that claims data are subject to seasonal fluctuations over the holiday period that can distort weekly readings. Dismissals have slowed as employers compete to hire and retain staff, with Americans quitting their jobs at historically high levels.

The UK economy grew less than forecast in October as shortages of materials hit manufacturing and construction, and a further loss of momentum now seems inevitable with consumers facing fresh restrictions. GDP grew 0.1%, compared with 0.6% in September. In October, manufacturing flat-lined and construction shrank as both sectors continued to experience shortages of materials and components. The potential hit to consumer spending has left traders all but convinced that the Bank of England will refrain from raising interest rates until February. Until recently, a December hike was fully priced in due to acute labour shortages driving up wages and inflation.

GBP

Sterling is weaker against most major currencies this morning. Boris Johnson is facing a major Conservative rebellion over Covid-19 restrictions next week, with party unrest playing out ahead of a highly problematic by-election in North Shropshire, where the Liberal Democrats hope to overturn a 23,000 Conservative majority. Three government parties that took place last year when London was under stringent coronavirus restrictions are to be investigated by the UK’s top civil servant. Meanwhile, the UK is battling its worst-ever outbreak of avian flu after a cull of poultry failed to halt the spread of the virus brought in by migratory birds.

EUR

The euro is lower versus the dollar and higher versus the pound overnight. France’s President Emmanuel Macron has called for the EU to stand up for itself as a strategic and economic power in a crisis-ridden world by securing its external borders and controlling clandestine migration, deepening defence co-operation and investing in high-tech industries. Macron called for a reform of the 26-nation Schengen zone and an improved emergency system to send security forces to guard external frontiers. Elsewhere, the European Commission will start legislating within days to change the rules on medicines to prevent an effective ban on many drugs in Northern Ireland.

USD  

The dollar is stronger against most majors in the early morning trade. The US Senate passed legislation creating a fast track to raising the nation’s debt ceiling, paving the way for Congress to act next week to eliminate the risk of a default. The bill gives the Democratic majority one-time authority to raise the country’s borrowing limit in a separate piece of legislation without threat of a GOP filibuster. Meanwhile, White House economic adviser Brian Deese said November’s inflation report won’t account for recent declines in the cost of energy and commodities, in an effort to downplay data that is sure to show a surge in consumer prices.

Markets

Asian stocks followed their U.S. peers lower Friday as traders weighed the economic threat of virus restrictions against optimism about the efficacy of vaccines. Equity markets declined across Asia, and European futures declined. U.S. contracts were little changed after benchmarks ended a three-day rally amid losses consumer discretionary and real estate stocks. Treasuries were steady, with a lackluster sale of 30-year bonds paring gains on Thursday. Oil traded below $71 per barrel and Bitcoin fluctuated.

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

8:00 a.m.: U.K. Oct. GDP, trade balance, industrial production
8:00 a.m.: Germany Nov. CPI
8:00 a.m.: Norway Nov. CPI
10:05 a.m.: ECB’s Lagarde, Bundesbank’s Weidmann, BDF’s Villeroy on panel
10:30 a.m.: BOE inflation expectations survey
11:00 a.m.: ECB’s Panetta speaks
2:00 p.m.: Russia Oct. trade balance
2:30 p.m.: U.S. Nov. CPI
3:40 p.m.: ECB’s Elderson speaks
7:00 p.m.: Baker Hughes U.S. rig count
G-7 foreign ministers meeting in Liverpool
Sovereign debt ratings: Austria, Netherlands, Spain, Malta, U.K.
Corporate Events
Earnings include Academy Sports & Outdoors, Wheels Up Experience
Daimler Truck Frankfurt IPO

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