May 16, 2022

“Slowing economic growth paired with COVID-19-related economic disruptions and aggressive US Fed tightening left a strong plunging pressure on the yuan. Meanwhile, it appears that Chinese authorities are standing aside to let their tightly managed currency fall.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Amazon founder, Jeff Bezos, went after President Joe Biden for the White House’s policies regarding inflation, and took credit for deficit reduction in a tweet on Sunday. Bezos argued that the inflation crisis could have been made worse if not for West Virginia Senator Joe Manchin refusing to vote for further COVID stimulus. ‘The administration tried hard to inject even more stimulus into an already over-heated, inflationary economy and only Manchin saved them from themselves,’ Bezos wrote. ‘Inflation is a regressive tax that most hurts the least affluent. Misdirection doesn’t help the country.’ With inflation at a 40-year high Fed Chairman Jerome Powell admitted last week that the central bank acted too slowly to stem inflation, and Cleveland Fed President Loretta Mester suggested a 75-basis-point rate hike is back on the table for September if inflation isn’t moving down by then.

This week, Boris Johnson is expected to sign off plans for a law to unilaterally scrap parts of the UK’s Brexit deal, in spite of warnings it could collapse talks with Brussels and spark a trade war with the EU. The prime minister’s allies tried on Sunday to calm tensions, insisting the plan to rewrite parts of the Northern Ireland protocol was only “an insurance policy” in case talks with the EU on improving its operation failed. But Simon Coveney, Ireland’s foreign minister, told Sky News: “There’s no way the EU can compromise if the UK is threatening unilateral action to pass domestic legislation to set aside international obligations.” Ministers are expected to meet as early as Tuesday to agree the plan, in spite of fears in the Treasury that it could ultimately lead to EU trade retaliation and worsen the cost-of-living crisis.

GBP

Sterling is weaker than most major currencies in the early morning trade. British manufacturers are bringing back production to the UK in a “reshoring” push to try to address the supply-chain chaos caused by the coronavirus pandemic and Brexit. Energy bills for more than 22mn British households will change every three months rather than every six from October, under proposals to adapt the country’s energy price cap published today. UK employers with gaps in their workforce increasingly plan to train existing staff rather than raise wages to lure new recruits, according to a survey that suggests pay pressures may be easing. This morning, Andrew Bailey will face the toughest parliamentary grilling of a Bank of England governor since the global financial crisis, as MPs challenge him on whether the bank has lost control of inflation.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. European stocks opened the week lower after unexpectedly weak Chinese economic data increased fears of a global slowdown. German chancellor Olaf Scholz suffered a major setback yesterday when his Social Democrats slumped to their worst-ever electoral result in North Rhine-Westphalia, Germany’s most populous state and once an SPD stronghold. Sweden’s security needs are best served by NATO membership, Prime Minister Magdalena Andersson said yesterday, after her party abandoned decades of opposition to joining the US-led alliance in the wake of Russia’s invasion of Ukraine. Meanwhile, Switzerland’s fabled neutral status is about to face its biggest test in decades, with the defence ministry tilting closer to Western military powers in response to Russia’s invasion of Ukraine.

USD

The dollar is well bid against most major currencies overnight. Skyrocketing natural gas prices have raised manufacturing and transportation costs across many US industries, and the situation should persist as the United States exports more gas to Europe to make up for Russian supplies lost to sanctions. US natural gas futures have doubled this year, far more than the increases in retail gasoline and diesel that have made Americans angry at the US energy industry and the government. Kash Patel, a former Republican aide on the House intelligence committee who Donald Trump weighed installing as deputy CIA director, is publishing a children’s book on Monday that perpetuates the false claim the Steele dossier sparked investigations into Russian collusion.

Markets

Stock futures fell early this morning after a week of steep losses that ended on a high note, and ahead of a big earnings week for retailers. Futures tied to the Dow Jones Industrial Average slipped by 31 points, or 0.1%, while S&P 500 futures fell 0.47%. Nasdaq 100 futures were down 0.71%. European shares fell this morning, with French and German stocks losing up to 1% each, as alarmingly weak economic data from China fanned global recession fears. China’s April retail sales plunged 11.1%, almost twice the fall forecast, while industrial output dropped 2.9% when analysts had looked for a slight increase, adding to fears that the world’s second-biggest economy could contract this quarter amid COVID-19 lockdowns. German and French benchmark indexes were last down about 0.6% each, paring some early losses, while Wall Street futures pointed to a lower open.

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

8:00 a.m.: Germany April WPI
9:00 a.m.: ECB’s Villeroy speaks
9:00 a.m.: Turkey March currency account
10:20 a.m.: ECB’s Panetta speaks
10:30 a.m.: Italy March general government debt
10:40 a.m.: ECB’s Lane, Panetta speak
11:00 a.m.: Euro-area March trade balance, economic forecasts
11:30 a.m.: Germany, Netherlands sell bills
2:00 p.m.: Poland April CPI
2:50 p.m.: France sells bills
3:45 p.m.: Riksbank’s Ingves in parliament hearing
4:15 p.m.: BOE’s Bailey, Ramsden, Haskel, Saunders speak
APPEA oil and gas conference in Brisbane

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