December 20, 2022

“The yen rose by more than 3% to a four-month peak against the US dollar this morning after the Bank of Japan surprised markets by reviewing its yield curve control policy. Meanwhile, UK Gilt yields rose by circa 15bps along the curve, as the Bank of England announced it will increase the pace of Quantitative Tightening in the first quarter of 2023.”

Tim Hallinan – Trading Director

Main Headlines

Russia and China are “sharing a toolkit” of strategies to undermine NATO members. Washington is pushing members of the transatlantic alliance to toughen their stance towards China, citing Beijing’s military developments, threats to critical western infrastructure such as transport and power networks, its “no limits” partnership with Moscow and support for its war against Ukraine. “Those two are increasingly sharing a toolkit that should concern the NATO alliance,” said the US ambassador to NATO, pointing to the threats to energy supplies and cyber security among other factors.

Health secretary Steve Barclay will hold crisis talks with ambulance unions today over emergency strike cover, as nurses’ leaders warned that their members’ industrial action over pay could last six months. Barclay will meet leaders of three unions representing ambulance workers to discuss what cover for 999 calls will be provided during action over pay on Wednesday. Some people with serious health conditions will be forced to call taxis rather than ambulances in order to go to hospital, although health chiefs expect that the most serious cases, including heart attacks, will be covered.

GBP

Sterling is well bid against most major currencies overnight. Labour shortages that fuel inflation and squeeze funding for public services may be “the shape of things to come” for the UK economy. Early retirement by people in their 50s and 60s has been the main reason behind an increase of more than half a million in the number of working-age adults who are neither in employment nor job-seeking. UK regulators have fined TSB Bank nearly £50mn for failures in risk management and governance after technical issues from an IT upgrade hit branches and blocked customers from its services.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. A revamp of Spain’s labour rules has led to a 142% rise in young workers with permanent contracts in a country where rates of youth unemployment and under-employment have been among the highest in Europe since the global financial crisis. European Union nations’ energy ministers have agreed on a gas price cap, after weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

USD

The dollar is weaker than most major currencies in the early morning trade. Negotiators in the US Congress unveiled a $1.7 trillion government funding bill on Monday, as lawmakers scrambled to pass the measure, which includes record military spending, before temporary funding runs out at the week’s end. State agencies in Louisiana and West Virginia on Monday became the latest to ban the use of the popular social media service TikTok on government-managed devices over concern that China could use it to track Americans and censor content.

Markets

The Bank of Japan’s unexpected hawkish shift is sending shock waves through global markets that may just be getting started as the developed world’s last holdout for rock-bottom interest rates inches toward policy normalization. Japanese government bonds and Treasuries both slumped, while the yen surged after the BOJ raised its cap on benchmark 10-year yields to around 0.5% from 0.25%, surprising every economist surveyed by Bloomberg. The fallout touched everything from US stock-index futures to the Australian dollar and gold.

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

7:00 a.m.: Finland Nov. Unemployment
8:00 a.m.: Denmark Dec. Consumer Confidence
8:00 a.m.: Switzerland Nov. Exports
8:00 a.m.: Germany Nov. PPI
10:00 a.m.: Euro-area Oct. ECB Current Account
10:00 a.m.: ECB’s Kazimir, Muller speak
11:00 a.m.: UK to sell bonds
11:00 a.m.: Norway PM holds press conference
12:00 p.m.: Portugal Nov. PPI
4:00 p.m.: Euro-area Dec. Consumer Confidence
Rishi Sunak appears before Parliament’s Liaison Committee
Thousands of UK ambulance workers plan to strike in a dispute over pay
Irish High Court hearing in the case of Sinead McSweeney, global VP for public policy at Twitter

Corporate Events

Earnings include Nike, General Mills, FedEx

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