November 4, 2021

“The dollar halted its slide on Thursday morning after a fall on Wednesday when the US Federal Reserve said it would not rush to raise interest rates. Meanwhile, sterling is on edge ahead of the Bank of England’s monetary policy meeting today which will detail the central bank’s plans for tackling inflationary pressure in the UK economy.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The Federal Reserve plans to ‘taper’ bond purchases, winding back a $120bn-a-month stimulus programme as the US economy contends with surging inflation. Fed officials agreed to wind down their $120-billion-a-month asset-purchase program by $15 billion each in November and December, a pace that could phase out the purchases entirely by next June. Fed Chairman Jerome Powell said officials had pulled forward, relative to market expectations earlier this year, the potential end-date for the bond-buying program in case they decide they need to raise interest rates next year to cool down the economy if inflationary pressures broaden.

Financial markets are confident the Bank of England will tighten monetary policy by at least 0.15%, raising the base interest rate. Many predict the UK will become the first leading central bank to begin a series of interest rate rises to nip inflationary pressure in the bud. With new BoE forecasts expected to show inflation rising above 5% next year and exceeding its 2% target for longer than previously anticipated, traders in money markets are convinced the central bank will at least raise interest rates from 0.1% to 0.25%, with many expecting a bigger move. Economists are less sure the BoE Monetary Policy Committee will vote for a rate rise, but many have shifted their views over the past month after a series of aggressive messages on inflation from central bank officials.

GBP

Sterling is higher against the euro and lower against the dollar in overnight trade. More than 40 countries are committing to shift away from coal, in pledges made at the COP26 climate summit, the UK government says. Major coal-using countries including Poland, Vietnam and Chile are among those to make the commitment. But some of the world’s biggest coal-dependent countries, including Australia, India, China and the US, did not sign up to the pledge. Britain and France are hoping to strike a deal today to de-escalate the increasingly acrimonious row over post-Brexit fishing rights. A British-owned ship seized last week in Le Havre by French authorities was released Wednesday.

EUR

The euro is lower against most majors overnight. Christian Lindner, leader of Germany’s liberal FDP party and a contender for the job of finance minister in the next government, said Wednesday he was open to discussing proposals to adapt EU fiscal rules. Talks to revive the stalled Iran nuclear deal, aka the Joint Comprehensive Plan of Action, will resume on November 29 in Vienna. The EU’s Enrique Mora will chair the talks, and representatives from China, France, Germany, Russia and the U.K. — as well as Iran — will attend. A questionable online campaign by the Council of Europe, which is partly funded by the European Commission, has caused major political outrage in France. The campaign ran slogans seemingly promoting the Hijab for young women on Twitter, before the content was pulled after spokespeople for the Council of Europe stated they would think about a better method of presentation.

USD

The dollar is higher against most majors in early morning trade. House Democrats released an updated version of the party’s social spending and climate package, adding back a paid-leave program that had previously fallen out of the bill and including a measure sharply raising the $10,000 cap on the state and local tax deduction. Democratic New Jersey Gov. Phil Murphy held on to his office in a race that ended up much closer than the polls had suggested before Election Day. Mr. Murphy fended off Republican Jack Ciattarelli to become the first Democrat since 1977 to win re-election as governor. The Associated Press declared Mr. Murphy the winner on Wednesday evening, when the Democrat was ahead by about 19,000 votes out of more than 2.4 million ballots cast.

Markets

Global stocks hovered around record levels Thursday after the Federal Reserve unveiled an expected tapering of stimulus and said it will be patient about raising interest rates. Treasury yields were steady. MSCI Inc.’s world share gauge was set for a new peak, as Japan and China climbed. U.S. futures fluctuated and European ones rose in the wake of all-time highs for the S&P 500, Dow Jones Industrial Average, Nasdaq 100 and Russell 2000. The Fed indicated it was alert to inflation risks but still sees them as likely transitory due to pandemic-linked supply and demand imbalances. The Treasury yield curve remained steeper compared with before the Fed decision. Measures of bond-market inflation expectations have ticked up — suggesting residual concerns about curbing price pressures. Traders largely maintained bets on the timing of rate moves: the first hike is seen around July, with some 55 basis points of increases by end-2022.

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

8:00 a.m.: Germany Sept. factory orders

9:15 a.m.: Spain Oct. services, composite PMI

9:45 a.m.: Italy Oct. services, composite PMI

9:50 a.m.: France Oct. services, composite PMI

9:55 a.m.: Germany Oct. services, composite PMI

10:00 a.m.: Euro-area Oct. services, composite PMI

10:00 a.m.: Norway deposit rates

10:30 a.m.: U.K. construction PMI

11:00 a.m.: Euro-area Sept. PPI

1:00 p.m.: BOE monetary policy decision

2:00 p.m.: ECB’s Lagarde speaks

2:30 p.m.: Czech Republic repurchase rate

OPEC+ production policy virtual conference

COP26 energy agenda day

Bloomberg Financial Innovation Summit

Corporate Events

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