December 19, 2022

“Officials from the Federal Reserve have signalled that interest rates will keep rising until they are confident that inflation has been subdued. The European Central Bank also struck a hawkish outlook for 2023.”

Tim Hallinan – Trading Director

Main Headlines

Europe risks falling behind the US in attracting investment in its efforts to tackle climate change as regulatory burdens threaten to hold back growth. Björn Rosengren, chief executive of ABB, said that while the “drive towards sustainability is quite clear,” the challenge was to “do it in a way that does not destroy Europe.” America’s new $369bn Inflation Reduction Act involves incentives and tax credits for investments in green energy and technology. The US reforms have triggered fears in Brussels that companies will invest there instead of in Europe at a time when the region is battling multiple headwinds, including soaring energy costs and high inflation.

Boilers that run on hydrogen are likely to have only a “limited” role in replacing natural gas in heating homes in the UK. MPs on the House of Commons science and technology committee said that low carbon hydrogen is “not a panacea” to cutting the country’s greenhouse gas emissions. It would be best applied to areas of the economy where there are not yet any viable green alternatives, such as heavy industry and parts of the rail network, they said. The committee acknowledged that while hydrogen could be used in domestic heating, it believes “the extent of its potential is still uncertain and looks likely to be limited rather than widespread.”

GBP

Sterling is stronger against the dollar and weaker against euro this morning. Electricity companies are urging the UK government to boost access to a £40bn state-backed liquidity support scheme, as continued price volatility in wholesale power markets reignites fears that suppliers might run out of cash. Investors with £800bn in assets have called on food retailers and the UK government to eliminate risks of debt bondage and forced labour on UK farms. Britain is bracing itself for one of the most disruptive weeks of strike action in recent history after the government signalled its determination to face down the unions despite calls for pay negotiations from health leaders.

EUR

Euro is well bid against most major currencies overnight. A global deal to set a minimum tax rate for multinationals of 15 per cent achieved a big breakthrough last week, with the EU’s promise to introduce the deal across member states expected to trigger a wave of implementation across the world. European Union countries are considering a proposal to cap gas prices at lower levels than suggested to date, before the bloc’s energy ministers meet today to attempt to approve the measure. Kremlin leader Vladimir Putin flies to Belarus amid fear in Kyiv that he intends to pressure the former Soviet ally to join a new ground offensive against Ukraine and reopen a new front.

USD

The dollar is weaker than most major currencies in the early morning trade. The congressional panel probing last year’s attack on the US Capitol will consider recommending criminal charges against Donald Trump for fomenting the riot, deepening the former president’s legal woes as he mounts a new bid for the White House. Animal activists are calling for the US government to stop the importation of non-human primates for laboratory use after documents from the American Centers for Disease Control and Prevention reveal that deadly pathogenic agents, zoonotic bacteria and viruses entered the country with monkeys imported from Asia between 2018 and 2021.

Markets

Global stocks attempted to recover from two weeks of losses sparked by concern that continued policy tightening by the US Fed and other central banks would trigger economic recession and hit companies’ profits. Europe’s Stoxx 600 index opened half a percent higher, while futures in the US pointed to gains for the S&P 500 and the tech-heavy Nasdaq 100, though both indexes are on track to end the month lower after rallying in October and November. An Asian equity benchmark earlier headed down for the third day, the longest losing streak in almost two months.

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

9:00 a.m.: ECB’s De Guindos speaks
10:00 a.m.: Germany Dec. IFO survey
11:00 a.m.: Euro-Area Oct. Construction Output
4:00 p.m.: US Dec. NAHB Housing Market Index
7:00 p.m.: US Jan. 6 panel to vote on final report
EU energy ministers meet in Brussels

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