October 29, 2021

“The dollar is at its weakest level in a month against major peers on Friday, hurt by a stronger Euro as traders bet on an interest rate hike following the European Central Bank’s Governing Council Meeting on Thursday.”

Tim Hallinan, Trading Director

Main Headlines

The White House released a $1.85 trillion framework designed to show progress in months of social spending and climate talks that fell short of persuading progressives to quickly approve a parallel, roughly $1 trillion infrastructure bill. President Biden met with House Democrats in the morning to pitch them on the new framework, a far slimmer piece of legislation than the $3.5 trillion package the party originally had outlined. Democrats have been rushing to complete negotiations on the bill so that they can also move forward with the public-works legislation, which passed the Senate over the summer but has languished in the House. Party leaders initially signalled they wanted to hold a vote on the infrastructure bill later Thursday but abandoned that plan in the evening in the face of progressive opposition.

A number of UK think-tanks suggest that the Budget will leave millions of British citizens worse off, failing to prevent a squeeze on disposable incomes whilst taxes and costs of living surge ahead. The plans set out on Wednesday represented a “real and substantial boost” to public spending, the Institute for Fiscal Studies think-tank said on Thursday, but a cocktail of high inflation, tepid pay growth and sharp tax rises means households face years of stagnating living standards. Meanwhile, the Resolution Foundation, another think-tank, published analysis showing that households would on average be paying £3,000 more each year in taxes by 2024-25, with the biggest impact felt by higher earners.

GBP

Sterling is strong against most majors in overnight trade. The UK has condemned “unjustified” threats from France and summoned the country’s ambassador in an escalating row over post-Brexit fishing rights. Foreign Secretary Liz Truss is calling for talks later, asking Catherine Colonna to explain “disappointing and disproportionate threats”. A British trawler was seized by France and another fined during checks off Le Havre on Thursday. French authorities said the detained vessel did not have a licence. However, Environment Secretary George Eustice has insisted the European Union did grant a licence to the trawler and said it was “unclear” why, according to reports, it was subsequently withdrawn from the list given to the EU.

EUR

The euro is lower against most majors overnight. The EU will today formally recognize the U.K.’s Covid certificates for travel, a positive move for UK citizens travelling in the bloc who have been relying on PCR tests, antigen tests and NHS Covid Passes on a country-to-country basis. UK citizens cannot get an EU Covid-19 Green certificate, so recognition of UK Covid certificates is vital. The ECB Governing Council has not announced a hike in interest rates at a monthly monetary policy meeting, despite rising inflation across the EU. Ursula von der Leyen, The European Commission President, on Thursday publicly presented Poland a compromise that would unlock up to €36 billion in recovery funding for Polish citizens, outlining at a press conference three demands for changes to the country’s judicial system that would ease a deal between Warsaw and Brussels.

USD

The dollar is higher against the euro and lower against sterling in early morning trade. President Biden has arrived in Europe for the G20 Summit in Rome and COP26 Summit in Glasgow in the coming weeks. He landed in Rome early on Friday for a G20 summit where plans for a global minimum tax will be on the agenda. America’s second Catholic president will also meet Pope Francis at the Vatican on Friday. He will head to Scotland on Sunday night for the United Nations climate conference, COP26, in Glasgow. Facebook has changed its corporate name to Meta as part of a major rebrand. The company said it would better “encompass” what it does, as it broadens its reach beyond social media into areas like virtual reality (VR). The change does not apply to its individual platforms, such as Facebook, Instagram and Whatsapp, only the parent company that owns them.

Markets

U.S. futures fell Friday and Asian stocks were mixed after disappointing Amazon.com Inc. and Apple Inc. earnings and as traders weighed bond-market gyrations amid concerns over inflation and monetary tightening. Chinese shares rose while Japan fluctuated. European contracts declined, and Nasdaq 100 futures underperformed S&P 500 counterparts. Apple and Amazon fell in extended trading, signalling a possible drop of more than $200 billion in combined market value when the U.S. reopens. That dented upbeat views on company performance that earlier took Wall Street to a record close. The U.S. 10-year Treasury yield climbed. The curve between 20- and 30-years has inverted for the first time since the U.S. government reintroduced a two-decade maturity in 2020. Inflation pressures and the prospect of interest-rate hikes are whipsawing bond markets. Australian debt slid after the central bank opted against defending its 0.1% yield-target, fuelling speculation it may abandon the goal.

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

7:30 a.m.: France 3Q GDP
8:45 a.m.: France Oct. CPI
9:00 a.m.: Spain 3Q GDP
10:00 a.m.: Italy 3Q GDP
10:00 a.m.: ECB survey of professional forecasters
10:30 a.m.: U.K. Sept. mortgage approvals
11:00 a.m.: Italy Oct. CPI
11:00 a.m.: Euro-area Oct. CPI, 3Q GDP
2:00 p.m.: G20 finance and health ministers meet
2:30 p.m.: U.S. Sept. PCE deflator
4:30 p.m.: ICE Futures Europe
6:00 p.m.: Russia Sept. unemployment rate, retail sales
7:00 p.m.: Baker Hughes U.S. rig count
Norway, Germany, Italy, Poland, Czech Republic and Slovakia sovereign debt ratings

Corporate Events

Earnings: OMV, Exxon, Eni, Chevron, Danske Bank, Natwest, Cameco, AbbVie, Colgate-Palmolive, Aon, L3 Harris, Charter Communications, Cerner

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