Morning Report – Wednesday 29th July

Main Headlines

China should prepare for potential U.S. sanctions by increasing use of its own financial messaging network instead of SWIFT for cross border transactions in the mainland, Hong Kong and Macau, according to a report from the investment banking unit of Bank of China.

Asian stocks were mixed ahead of the Fed. Shares slipped in Japan, where Fitch lowered its outlook on the country’s debt. Stocks in Hong Kong and South Korea ticked up and China benchmarks outperformed. S&P 500 contracts nudged lower and FTSE 100 futures fell. Brent edged up and WTI was little changed ahead of EIA data expected to show a build in U.S. inventories. Gold took a breather, dipping below $1,954.

GBP

Sterling held near a four month high overnight as a broad U.S. dollar rout over the past week ran out of steam and negative news from Brexit negotiations prompted hedge funds to take profits. Concerns about the lack of progress of Brexit negotiations have so far capped further moves higher. The currency’s strength is also at odds with the state of the underlying economy.

EUR

The European Union says a deal needs to be done by October to allow time for ratification by the end of the year. Both sides have said the talks may be stalling. Michel Barnier, the EU’s chief Brexit negotiator, said a trade deal with the UK was possible, sources told Reuters on Monday.

USD

The dollar hovered near two year lows this morning as the US struggles to contain a spike in coronavirus cases, dashing hopes for a quick economic recovery. The dour outlook for the world’s largest economy is expected to see the U.S. Federal Reserve sticking to a dovish stance at its policy review later in the day, with dollar bears betting it could hint of other ways to loosen policy further down the road. Goldman Sachs on Tuesday noted that a potential Fed shift “towards an inflationary bias” along with record high debt levels by the United States government are raising “real concerns around the longevity of the U.S. dollar as a reserve currency.”

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

7:00 a.m.: Germany June Import Price Index
7:45 a.m.: France July consumer confidence
8:00 a.m.: Turkey June trade balance
8:00 a.m.: Spain June retail sales
8:30 a.m.: Turkey central bank inflation report
9:00 a.m.: Austria July manufacturing PMI
9:00 a.m.: South Africa June inflation
9:30 a.m.: U.K. June mortgage approvals
3:00 p.m.: U.S. Pending Home Sales
3:30 p.m.: EIA weekly report on U.S. oil inventories
7:00 p.m.: U.S. FOMC Rate Decision

Main Corporate Events

Earnings include Rio Tinto, Barclays, BASF, Deutsche Boerse, DWS, Enel, GlaxoSmithKline, Smith & Nephew, Saipem, Boeing, Bunge, GE, GM