December 3, 2021

Despite Omicron uncertainties clouding the outlook, the dollar leaped against more risk sensitive currencies ahead of key jobs data that could clear the path to earlier Federal Reserve interest rate hikes. Alongside Fed Chair Jerome Powell, Fed officials reiterated hawkish stances and that it might be time to raise rates to combat inflation, while the European Central bank maintained its dovish stance.

Tim Hallinan, Trading Director

Main Headlines

Yesterday, Congress averted a partial shutdown of the US government by passing legislation to extend government funding until February 18^th. The legislation, which also includes assistance for Afghanistan, was due to expire tomorrow. The likelihood of a government shutdown increased earlier in the week, after a number of Republican senators threatened to hold up the passage over the vaccine or test mandate, which makes companies with 100 or more workers make their employees take a daily test or ensure they are vaccinated. Eventually, their vote was secured by settling on a separate amendment to defund the vaccine mandate, which subsequently failed and the bill passed.

According to parliament’s spending watchdog, the UK government failed to put effective measures in place to prevent fraud, of up to £5bn in its Bounce Back Better Loan Program. The scheme was launched in May 2020 and guaranteed quick loans up to £50,000 to support businesses. The National Audit Office (NAO) announced that because the scheme was designed to be quick and had no credit checks on borrowers and limited verification, it made it vulnerable to fraud. They found that the Department for Business, Energy and Industrial were too heavily focus on organized crime, which enabled smaller instances of fraud to occur. Despite 13 additional measures being introduced ton tackle fraud the NAO stated these were too late.

GBP

Sterling is weaker than most major currencies in early morning trade. On Wednesday it was reported that the Biden administration were postponing a deal to remove steel and aluminium tariffs after worries that Boris Johnson is preparing to suspend parts of the UK-EU trade deal. However, the UK trade minister called this a ‘false narrative’ and stated that the two issues were entirely separate. Elsewhere, the UK’s decision to commit to a ‘mix and match’ booster jab strategy has been backed by a new study which found that Moderna and Pfizer mRNA shots were the most effective at increasing antibody levels. The study found that while all vaccines and boosters were safe and effective, the Moderna vaccine was the most effective and Oxford/ AstraZeneca and Valneva jabs were the least

EUR

The euro is higher against sterling and weaker against the dollar overnight. Five big banks have been fined €344m by European antitrust regulators for colluding to take part in a foreign exchange trading cartel. Penalties were levied against HSBC, Credit Suisse, Barclays and RBS after it was found they used an online chatroom called ‘Sterling Lands’ to exchange sensitive information and even coordinate strategies. Elsewhere, a week after 27 migrants died in the Channel, the French Prime Minister is calling on the UK to step up their response. Jean Castex told the UK it needs to help solve the migrant crisis by making it harder for people to find illegal work and providing a clearer route for legal migration.

USD

The dollar is well bid against most major currencies this morning. Randy Quarles, who is stepping down as Fed governor this month, stated that facilities put in place at the beginning of the pandemic ‘established the precedent that the Fed can lend to businesses and municipalities.’ In a wary tone he cautioned that the pandemic response should not lead to future central bank spending splurges. Yesterday, the Federal Trade Commission sued to block US chip company Nvidia Corp’s proposed $80bn acquisition of British semiconductor-design specialist Arm Holdings, reasoning the deal is anticompetitive. The lawsuit alleges that the deal would give one of the largest chip companies control over technology that rivals need to develop their own chips.

Markets

U.S. Treasuries were steady Friday and most Asian stocks rose as traders awaited a key jobs report that could stoke expectations for a quicker reduction in Federal Reserve stimulus. Treasury yields held most of a jump from the U.S. session, where Fed officials laid out the case for a faster removal of policy support amid high inflation. Crude advanced after OPEC+ proceeded with an output hike but left room for quick adjustments due to a cloudy outlook and the dollar was little changed. In Hong Kong, a gauge of Chinese tech firms slid. Investors were spooked by ride-hailing giant Didi Global Inc.’s plan to delist from the U.S. under pressure from Beijing, and growing scrutiny of Chinese firms traded in America. MSCI Inc.’s Asia-Pacific share index rose a third day, with Japan leading gains, while European equity futures rose and U.S. contracts fluctuated. Dip-buyers Thursday fueled the S&P 500’s best climb since October, a sign that some of the worst fears about the omicron virus strain are dissipating.

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

7:00 a.m.: Russia Nov. PMI

8:00 a.m.: Turkey Nov. CPI, PPI

8:45 a.m.: France Oct. industrial production

9:15 a.m.: Spain Nov. PMI

9:30 a.m.: ECB’s Lagarde speaks

9:45 a.m.: Italy Nov. PMI

9:50 a.m.: France Nov. PMI

9:55 a.m.: Germany Nov. PMI

10:00 a.m.: Euro-area Nov. PMI

10:30 a.m.: U.K. Nov. PMI

11:00 a.m.: Euro-area Oct. retail sales

12:00 p.m.: BOE’s Saunders speaks

2:00 p.m.: ECB’s Lane delivers keynote at ECB conference

2:30 p.m.: U.S. Nov. nonfarm payrolls

4:00 p.m.: U.S. Oct. factory orders

7:00 p.m.: Baker Hughes weekly rig count

Sovereign debt ratings: Italy, Russia, Slovenia, Sweden, Turkey, Germany

Draghi speaks in Rome at ISPI event

European Banking Authority annual risk assessment report

ICE Futures Europe traders report, CFTC traders data

Corporate Events

Earnings include RLX Technology, PB Fintech, Dole, Bank of Montreal, Hibbett

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