July 21, 2021

“The dollar’s strong performance in recent weeks took a pause, easing slightly from multi-month highs as nerves around the Delta variant of the Coronavirus calmed a little. Investors continue to opt to hold the dollar despite an end to the bout of risk averse tactics which characterised July so far. Expectations of the European Central Bank keeping the interest rates low had the euro pinned down on Wednesday.”

Tim Hallinan, Trading Director

Main Headlines

The Center for Disease Control in the US has announced that the Delta variant is quickly becoming the dominant strain of the virus, estimating that 83% of the of new cases are caused by the more infectious strain. Rochelle Walensky, Director of the CDC, told the Senate Health Committee on Tuesday that the number of Delta variant transmissions had increased dramatically from 50% at the start of July, in just three weeks. The US has averaged 239 deaths a day of the past week, despite a strong surge in vaccinations..

The Institute for Fiscal Studies announced that the Treasury will not be able to make new long-term public borrowing commitments in its autumn spending statement, despite the economic outlook improving and tax revenues rebounding. The IFS estimates public borrowing at £30bn less than the £234bn forecasted by the Office for Budget Responsibility in March. The findings highlight the constraints the U.K. Treasury is under even as a rapid rebound in economic growth boosts tax revenue and shifts more people into work from the welfare benefit rolls.

GBP

Sterling is lower against the dollar and higher against the euro overnight. Conflict between London and Brussels over post-Brexit trade in Northern Ireland is set to continue, as the British government plans to announce its preferred strategy in Parliament today. The foreign and development affairs minister, Dominic Raab, decried the EU’s plan for a post-Brexit deal for Gibraltar, accusing the bloc of trying to undermine the UK sovereignty over the territory. The Prime Minister is set to delay a tax increase to fund social care reforms in the UK which would have been financed by a 1% increase in National Insurance contributions.

EUR

The euro is lower against most majors in early morning trade. France is investigating whether Emmanuel Macron and 15 French ministers had their phones hacked in 2019 on behalf of Morocco using a spyware feature associated to NSO, an Israeli cybersecurity company. Morocco denies any knowledge and responsibility. Christine Lagarde and her colleagues at the European Central Bank will start two days of negotiations on how their 2% inflation goal is impacting fiscal policy across the bloc, with many expected rated to remain low for longer than initially anticipated.

USD

The dollar is well-bid against most majors overnight. The US has signalled it is nearing a deal with Germany over the Nord Stream 2 pipeline, as the White House aims to prevent Russia from “weaponising” the pipeline against neighbouring countries. US Climate Envoy, John Kerry has warned that China must cut emissions to avoid a climate crisis if the world wants to meet its target to limit global warming to 1.5 degrees Celsius. Kerry unveiled that he wants to discuss a carbon border tax with Beijing. US states are nearing a $26bn opioid settlement with Johnson & Johnson and other drug companies which would resolve thousands of lawsuits related to the deadly painkiller epidemic.

Markets

A stock rally paused in Asia on Wednesday and U.S. equity futures wavered as traders continued to evaluate the economic impact of coronavirus flareups. Treasuries trimmed a decline. MSCI Inc.’s index of Asia-Pacific shares pared gains. Country performance was mixed, with Japan higher and Hong Kong retreating. U.S. equity futures fluctuated after bargain hunters helped the S&P 500 to all but erase Monday’s slide. European equity contracts edged up. A rally in Treasuries has paused, sending 10-year yields back above 1.2%. It remains to be seen if the recovery in yields has legs amid lingering concerns about the delta virus variant. Oil slipped and Bitcoin was back above the $30,000 level.

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

8:00 a.m.: U.K. June Public Finances

9:00 a.m.: Switzerland June M3 Money Supply

10:00 a.m.: Italy May Industrial Sales

10:00 a.m.: Poland June Retail Sales

11:30 a.m.: Germany to sell 1.5 billion euros of bonds

1:00 p.m.: Russia to sell bonds

Corporate Events

Earnings include Iberdrola, Sartorius, Evolution, Akzo Nobel, Telia, J&J, Coca-Cola, Verizon, Texas Instruments, Anthem

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