June 29, 2022

“The greenback edged higher in the early morning trade, keeping its index against major peers below the two-decade high struck two weeks ago – an index which spurred mainly by weaknesses in the European currency overnight. Meanwhile, a decline in stocks across the globe is spreading turmoil among investors who are now seeking safety in US assets.”

Sam Cornford, Partner – Head of Trading

Main Headlines

US power companies are facing supply crunches that may hamper their ability to keep the lights on as the nation heads into the heat of summer and the peak hurricane season. Extreme weather events such as storms, wildfires and drought are becoming more common in the United States. Consumer power use is expected to hit all-time highs this summer, which could strain electric grids at a time when federal agencies are warning the weather could pose reliability issues. Utilities are warning of supply constraints for equipment, which could hamper efforts to restore power during outages. They are also having a tougher time rebuilding natural gas stockpiles for next winter as power generators burn record amounts of gas following the shutdown of dozens of coal plants in recent years and extreme drought cuts hydropower supplies in many Western states.

The UK defence secretary has urged the Treasury to stop banking the “peace dividend” and increase the military’s budget, as the head of the British army warned that Europe was facing a “1937 moment.” Ben Wallace’s comments were made as Britain prepared to send more artillery, helicopters, and air defence systems to Estonia, where UK forces are on the NATO front line of any possible Russian attack against the Baltic states. The defence secretary wants long-term investment in Britain’s military but claimed the issue “doesn’t get into that political top three or four that motivate chancellors and prime ministers of the day.” He spoke as Boris Johnson travelled to a NATO summit in Madrid, where the prime minister will urge other members of the alliance to go beyond the agreed target of spending 2 per cent of gross domestic product on defence.

GBP

Sterling is well bid against most major currencies overnight. Britain’s economy is struggling under the strain of two major risks in the form of double-digit inflation and a possible recession, leaving the Bank of England in a dilemma about how much further it should raise interest rates. Rishi Sunak is cooling on the idea of a windfall tax on electricity generators, with the UK chancellor increasingly likely to use broader reforms to electricity markets to prevent excess profits in the industry, senior government figures have said. Meanwhile, Britain’s energy regulator proposed a spending package of 20.9 billion pounds ($25.48 billion) today, including 2.7 billion pounds in upfront funding, as part of an initial five-year plan for sustainable and affordable regional energy grids.

EUR

Euro is weaker than most major currencies in the early morning trade. In a hangar that blends into the German port of Kiel’s industrial wharf, Thyssenkrupp engineers are testing the steel hull of a submarine to ensure it can withstand more than 50 bars of water pressure. But the vessels built in the country’s largest shipyard will not be delivered to Germany’s navy. Instead, they will go to the likes of Israel and Singapore, which placed orders with the group even as the German government shunned its homegrown manufacturer by awarding a €4.6bn contract for MKS 180 frigates to a Dutch company. Sweden and Finland today looked set for fast-track membership of NATO after Turkey lifted a veto on them joining. Hungary has passed a decree empowering the government to take over supervision of vital energy firms and the gas pipeline network operator FGSZ in an emergency that requires it to ensure continuous supply.

USD

The dollar is stronger against euro and weaker against sterling this morning. The 2022 US Energy and Employment Report showed that the number of US jobs in fossil fuels dropped in 2021, but overall American employment in the energy sector increased by 4 percent last year, outpacing the growth in overall US employment and led by job additions in the EV and hybrid vehicle-making sector. Federal Reserve Bank of San Francisco, Mary Daly, acknowledged that the pace of US growth may slow below 2% as the Fed ratchets up rates. She called inflation a major threat and said lifting the jobless rate won’t tip the economy into recession. Telehealth abortion providers have reported a surge in inquiries following the US Supreme Court’s ruling overturning Roe v Wade.

Markets

Stocks dropped this morning on renewed worries about economic growth as monetary policy tightens in much of the world to fight inflation. European equities fell for the first time in four days with sentiment also hurt by China remaining committed to its zero-Covid approach. US contracts steadied after a tech-led slide hurt the S&P 500 yesterday. Spanish inflation unexpectedly surged to a record, dashing hopes that inflation in the euro zone’s fourth-biggest economy had peaked, and emboldening European Central Bank policy makers pushing for big increases in interest rates. Treasuries advanced, lowering the 10-year yield to 3.15%. The dollar extended gains after rising the most in over a week in the Wall Street session. Oil slipped toward $111 a barrel. Investors appear sceptical that the FED can avoid a bruising economic downturn amid sharp interest-rate hikes.

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

8:00 a.m.: Sweden May household spending
9:00 a.m.: Spain June CPI; May retail sales
10:00 a.m.: Euro-area May M3
10:00 a.m.: ECB’s Guindos speaks
11:00 a.m.: Euro-area June consumer confidence
12:00 p.m.: Portugal releases monthly employment estimates
12:00 p.m.: ECB’s Schnabel speaks
2:00 p.m.: Germany June CPI
2:30 p.m.: US 1Q GDP
3:30 p.m.: Christine Lagarde, Jerome Powell, Andrew Bailey, Agustin Carstens speak in Sintra
5:00 p.m.: ECB’s Lagarde speaks
6:00 p.m.: Russia May industrial output, unemployment
Belgium June CPI
NATO summit
EIA US oil reports

Corporate Events

Earnings include H&M, Paychex, General Mills

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