December 6, 2021

“As fears surrounding the Omicron variant seemed to ebb, the dollar edged off last week’s peaks against riskier currencies on Monday. The greenback kept firm against the euro due to an expectation that inflation would continue to drive US interest rates. Elsewhere, market expectations of a more aggressive US tightening of monetary policy remained unchanged after a mixed jobs report last week.”

Sam Cornford, Partner and Head of Trading

Main Headlines

As Democrats race to pass legislation by the end of the year, the National Defense Authorization Act has been delayed in the Senate over a couple of controversial policy issues relating to Russia and China. The annual bill usually passes in Congress with broad bipartisan support and this year’s $777.9 bn package is set to boost military spending by 5%. The act got delayed when senators objected to it passing unless they secured votes on amendments over the construction of the Nord Stream 2 pipeline and the addition of language from the bipartisan Uyghur Forced Labour Prevention Act. The latter ensures products made by the forced labour of Uyghur Muslims does not enter the US market. The Act’s passing is important for national security and includes pay rises for troops and financing of military construction.

The UK government are set to begin trials of a “smart customs border” involving innovative technologies that it hopes will minimise problems for British importers. From January 2022 the government are preparing to enforce full customs checks on EU imports and from next week UK companies will be asked to submit bids to lead the new system. The announcement follows a survey by the Federation of Small Businesses last week, where they cautioned that only a quarter of small British importers are prepared for new border controls on imports from the EU. The UK has committed £180mn to build a ‘single trade window’ system by 2025 which will simplify the customs process.

GBP

Sterling is well-bid against most majors in early morning trade. Yesterday, the deputy prime minister confidently stated he hoped Britons would enjoy a ‘great Christmas’ which would be ‘totally different’ from the last one. He was hopeful that extra restrictions would not be put in place before the festive season, despite growing concerns surrounding the Omicron variant. Elsewhere, Boris Johnson has ordered de-escalation of tensions with France and is seeking to reset Anglo-French relations, following information he is convinced Macron is going to win a second term. The prime minister told his team not to respond to comments Macron made calling Johnson ‘a clown’ or likening his behaviour to an ‘idiot.’

EUR

The euro is weaker than most major currencies overnight. Germany’s liberal Free Democratic Party (FDP) voted overwhelmingly Sunday to approve the coalition deal with the Social Democrats (SPD) and the Greens that is expected to see the three parties take over as the new government this week. With the SPD giving its go-ahead Saturday, the coalition is expected to get the final all-clear Monday when results come in from a poll of Green party members. European auto suppliers warn half a million jobs would be put under risk following EU plans to shift to electric cars by 2035. A poll of 100 companies for the European Association of Automotive Suppliers, Clepa, revealed that two thirds of those half a million roles would disappear in the five years before that date. However, a different survey by PwC found that the transition would create 226,000 jobs in manufacturing electric parts.

USD

The dollar is higher against the euro and lower against sterling in early morning trade. Anthony Fauci has said information about the severity of the new Omicron coronavirus variant are ‘encouraging’ and booster jabs potentially offer a ‘considerable degree’ of protection. Yesterday, he acknowledged while it was too soon to know the full consequences of the strain, he remained encouraged by the initial data.  Elsewhere, on Saturday Trump’s social media start up, announced it had raised $1bn in private investment in public equity from unidentified investors. US officials cautioned that U.S. intelligence agencies don’t know whether Russia will in fact invade Ukraine, whose ties with the West have been opposed by Mr. Putin. The intelligence reporting, while containing new details, echoes concerns raised earlier by the U.S. and its allies in the North Atlantic Treaty Organization.

Markets

Stocks and futures showed a degree of stabilization in Asia Monday with investors weighing the regulatory outlook for Chinese technology companies and bets on monetary policy easing. Index of Chinese tech stocks traded in Hong Kong retreated for a third day. Mainland China shares fluctuated and government bonds rallied amid bets the central bank will soon ease monetary policy to aid growth. Chinese Premier Li Keqiang signaled an upcoming cut in the amount of cash banks must keep in reserve — and the Securities Daily reported the cut could come as soon as this month. China’s securities watchdog on Sunday tried to play down fears over Chinese companies’ withdrawal from American exchanges. Didi Global Inc.’s plan to switch its listing to Hong Kong from New York sent the nation’s shares in the U.S. tumbling and sparked fears others might follow. Treasuries pared some of Friday’s rally and U.S. and European futures pushed higher while Japan’s benchmark had a modest decline. Treasury yields rose, trimming Friday’s plunge that sent the 10-year yield closer to 1.30% and attention turns to U.S. consumer prices which are expected to show the largest annual advance in decades, keeping pressure on the Federal Reserve to deliver swifter policy tightening. Elsewhere, gold held an advance and oil rose after Saudi Arabia boosted the prices of its crude.

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

8:00 a.m.: Germany Oct. factory orders

10:00 a.m.: Italy Oct. retail sales

10:00 a.m.: U.K. Nov. new car registrations

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

10:30 a.m.: Euro-area Dec. investor confidence

12:00 p.m.: Riksbank’s Skingsley on payments

12:30 p.m.: BOE’s Broadbent speaks

12:30 p.m.: Turkey Nov. effective exchange rate

World Petroleum Congress begins

Putin visits India for two-day summit

Erdogan bi-lateral visit to Qatar

Corporate Events

Earnings: Sino Biopharmaceutical, Gitlab, Coupa Software, MongoDB

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