October 6, 2021

“The dollar edged higher today amid nervousness that surging energy prices could spur inflation and interest rate hikes, and as traders awaited US jobs data for clues on the timing of the Fed’s policy tightening. Investors are bracing for the Fed to begin tapering asset purchases this year and lay the ground for an exit from pandemic-era interest rate settings well before central banks in Europe and Japan.”

Tim Hallinan, Trading Director

Main Headlines  

Senator Elizabeth Warren called on the Securities and Exchange Commission to examine whether top Federal Reserve officials violated insider trading rules, as the Fed announced its inspector-general has opened an investigation. Warren called for a full investigation of trading activity by high-level Fed officials. She pointed to new revelations that Vice Chair Richard Clarida moved between $1 million and $5 million out of a bond fund into stock funds in February 2020, just a day before Fed Chair Jerome Powell put out a statement signaling that the central bank might take action to cushion the economy at the onset of the pandemic. The uproar comes at an inopportune time for Powell politically, as he awaits a decision on whether President Joe Biden will reappoint him for another term. Warren last week said she would oppose his renomination.

Today, PM Boris Johnson will escalate a row with business when he tells the Conservative party conference that some bosses have used high immigration as “an excuse” not to invest in their company or staff. The UK PM will insist his government has “the guts” to oversee a major transition to a “high-wage, high-skill, high-productivity economy” as he ends his conference locked in a war of words with business and farmers — once seen as a bedrock of Tory support. He has become infuriated with suggestions that the government is to blame for recent fuel shortages and supply chain disruption and has tried to mould the crisis into a new economic message. Some senior Tories say that recent state intervention in the economy, including the furlough scheme, had wrongly created a sense that ministers were responsible for fixing every business problem.

GBP 

The sterling is stronger than the euro but weaker than the dollar this morning. British households are being quoted fixed-price electricity and gas contracts of more than £2,000 a year, the first time they have reached that level in at least a decade as wholesale gas prices continue to soar. Companies including Eon, Ovo Energy, Outfox the Market and So Energy have been offering one- or two-year fixed dual electricity and gas deals that are more than £700 above the main price cap, which is regulated by Ofgem to protect 11m households and rose to £1,277 at the start of October. Energy suppliers said the deals, based on average usage, more accurately reflect the current cost of providing households with electricity and gas.

EUR

The euro is lower than most majors in the early morning trade. EU member states have reduced tensions with the UK over Gibraltar by dropping a Brussels proposal for Spanish authorities to police entry into the UK territory. Yesterday, at a meeting of EU ambassadors, member states agreed instead to propose that officials from Frontex, the pan-EU border force, are stationed at Gibraltar’s port and airport alongside local officials. The move puts the EU’s negotiating position for the bloc’s talks with London over the future of the territory in line with a British-Spanish deal reached on New Year’s Eve last year. The final agreement has to be codified in a UK-EU treaty.

USD 

The dollar is stronger than most majors overnight. US politicians pounded Facebook yesterday, accusing CEO Mark Zuckerberg of pushing for higher profits while being cavalier about user safety. During a Senate Commerce subcommittee hearing, whistleblower Frances Haugen called for transparency about how Facebook entices users to keep scrolling, creating ample opportunity for advertisers to reach them. The senators demanded regulators investigate whistleblower accusations that the social media company harms children’s mental health and stokes divisions. Zuckerberg, hours later in a public Facebook post, defended the company, saying the accusations were at odds with Facebook’s goals.

Markets 

U.S. and European equity futures fell Wednesday and Asian stocks dipped as Treasury yields extended an advance amid a surge in energy costs that’s stoking inflationary pressures. The dollar climbed. MSCI Inc.’s Asia-Pacific index retreated for a fourth session, contrasting with an overnight Wall Street rebound spurred by bargain-hunting in beaten-down technology stocks. S&P 500 and Nasdaq 100 contracts declined. The yields on 10-year and 30-year U.S. Treasuries both reached the highest since June. Faster-than-expected U.S. service-sector activity and price pressures from spiraling costs for crude oil and natural gas are adding to the case for a reduction in Federal Reserve bond-buying.

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

8:00 a.m.: Germany Aug. factory orders
8:00 a.m.: Riksbank’s Skingsley speaks
9:00 a.m.: ECB’s Centeno speaks
9:30 a.m.: Sweden Aug. industrial orders
10:30 a.m.: U.K. Sept. Markit/CIPS construction PMI
10:30 a.m.: Denmark to sell bonds and linkers
10:30 a.m.: Iceland 7-day term deposit rate
11:00 a.m.: Euro-area Aug. retail sales
11:00 a.m.: Sweden, U.K. sell bonds; Greece sells bills
11:30 a.m.: Germany to sell bonds
12:00 p.m.: Ireland Sept. unemployment rate
12:00 p.m.: Euro-area to sell bills
4:30 p.m.: EIA U.S. crude oil inventories
6:00 p.m.: Russia Sept. CPI
Bank of Portugal releases Oct. economic bulletin

Corporate Events 

Earnings include Constellation Brands, Tesco, Levi Strauss

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