June 21, 2022

“The US dollar index slid for a second session in a row, although it remains above 104.00 and close to the two-decade high of 105.79 hit last week, following the Fed’s 75 bps rate hike.”

Sam Cornford, Partner – Head of Trading

Main Headlines

US President Joe Biden said on Monday that a decision on whether to pause a federal gasoline tax could come by the end of this week, as the United States struggles to tackle soaring gasoline prices and inflation, now at its highest in 40 years. The pause of the federal gasoline tax is among various options being considered by the Biden administration to control inflation and surging gas prices. Treasury Secretary Janet Yellen said on Sunday some tariffs on China inherited from the administration of former President Donald Trump served “no strategic purpose” and added that Biden was considering removing them too as a way to bring down inflation. Biden said on Saturday he was in the process of making up his mind on easing US tariffs on China and planned to speak with Chinese President Xi Jinping soon. Biden also reiterated on Monday that he felt a US recession was not inevitable, adding he had spoken to former US Treasury Secretary Lawrence Summers who told NBC News on Sunday he expected a recession.

The Bank of England should raise rates faster than it has so far because sterling’s weakness is adding to Britain’s inflation pressures, interest-rate setter Catherine Mann said on Monday. Mann – who voted unsuccessfully for a half-point increase in interest rates last week – said the US Federal Reserve’s latest tightening plans, and the likelihood of similar moves from the European Central Bank, were pushing down on sterling. The BoE raised its benchmark interest rate by a quarter point to 1.25% on June 16 and said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation. While the BoE was the first major central bank to raise interest rates after the COVID pandemic, and has raised rates five times since December, it faces a major challenges with inflation forecast to hit 11% by October. Mann said there were signs that the jump in inflation in Britain – which hit a 40-year high of 9.0% in April – was becoming more embedded and persistent and had more momentum after government support measures for households.

GBP

Sterling is well bid against most major currencies overnight. Britain is facing its biggest rail strikes in decades after last-minute talks between the RMT union and train companies failed to reach a settlement over pay and job security. Britain plans to make “buy now, pay later” (BNPL) companies carry out affordability checks, gain approval by the Financial Conduct Authority (FCA) and ensure adverts are fair and clear, the government said on Monday, in measures to regulate the sector. BNPL businesses, which are unregulated, typically offer interest-free short-term loans that spread payments for retail goods such as clothing and have, according to the government, rapidly increased in popularity. British Prime Minister Boris Johnson had a minor, routine operation under general anaesthetic on Monday related to his sinuses, his spokesman said, adding he had recovered well and would take meetings at his Downing Street office.

EUR

The euro is stronger against the dollar and weaker against sterling this morning. Russia is committing a war crime by blocking the export of millions of tonnes of Ukrainian grain, the European Union’s foreign policy chief said on Monday as EU foreign ministers met to discuss ways to free up the crop amid a global food crisis. Germany’s BDI industry association slashed its economic forecast for 2022 on Tuesday and said a halt in Russian gas deliveries would make recession inevitable in Europe’s largest economy. German gross domestic product is now expected to grow by 1.5%, rather than the 3.5% forecast given before war in Ukraine. European Commission President Ursula von der Leyen has warned EU member states not to backtrack on their long-term drive to cut fossil fuel use, as Germany, Austria and the Netherlands said they would fire up coal plants after Russia moved to limit gas supplies. Leyen said governments need to stay focused on “massive investment in renewables”.

USD

The dollar is weaker than most major currencies in the early morning trade. US President Joe Biden is considering scrapping a range of Trump-era tariffs on a range of Chinese goods to curb inflation, but no decision is likely before next week’s Group of Seven summit. A White House spokesperson said the goal was to align the tariffs with US economic and strategic priorities, safeguarding the interests of workers and critical industries, while not “unnecessarily raising costs on Americans.” The US House panel investigating the January 2021 attack on the US Capitol will present evidence this week that former President Donald Trump was involved in a failed bid to submit slates of fake electors to overturn the 2020 election, a key lawmaker said on Sunday. Former Tesla employees have filed a lawsuit against the US electric car company alleging its decision to carry out a “mass layoff” violated federal law as the company did not provide advance notice of the job cuts.

Markets

Stocks climbed in Europe and Asia on Tuesday, US equity futures pointed higher, and Treasuries retreated amid improved investor sentiment compared with last week’s rout in global shares. The Stoxx Europe 600 index climbed, with basic resources leading the advance as most industrial metals gained. Contracts on the S&P 500 and Nasdaq 100 posted a second day of solid gains, signalling US markets are set to rebound following a rout that erased nearly $2 trillion in market value from the S&P 500 last week. MSCI Inc.’s Asia-Pacific index snapped an eight-day slide to add more than 1%. The drop in Treasuries took the benchmark 10-year yield to about 3.28%. The dollar dipped and the yen hovered near a 24-year low, sapped by the contrast between a super-dovish Bank of Japan and a hawkish Federal Reserve. Sentiment this week is being helped by comments from President Joe Biden that a US recession isn’t “inevitable,” but the outlook remains parlous for investors weighing whether the market has bottomed.

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

9:50 a.m.: Norway’s finance minister speaks
10:00 a.m.: ECB April current account
10:00 a.m.: ECB’s Rehn presents Bank of Finland forecast for Finland
10:30 a.m.: Italy April current account
12:00 p.m.: UK June CBI trends
3:00 p.m.: Ukraine sells bonds
Portugal April current account balance

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