October 7, 2021

“The U.S. dollar held close to a 14-month high against the euro on Thursday as a surge in energy prices fuelled worries that inflation cold limit economic growth whilst pressuring the Federal Reserve to normalise US policy.”

Tim Hallinan, Trading Director

Main Headlines

US lawmakers are approaching a breakthrough on a potential debt ceiling, after Mitch McConnell offered to back an extension of the government’s borrowing limit until December. The potential stop-gap measure offered to support a short-term extension of the country’s debt-limit to resolve investor and corporate fears. Democrats were split on the measure on Capitol Hall, with some immediately dismissing the pressure. Others expressed support for such a measure as a way to avert an economic and financial calamity and refocus their efforts on passing President Joe Biden’s economic agenda.

At the Conservative Party conference in Manchester, Boris Johnson told delegates that he planned to take the UK towards a ‘high-wage, high-skill, high-productivity’ society. He insisted there would be no going back to an old economic model, nor to the days of uncontrolled migration into the United Kingdom. Amid promises to take an ambitious approach to levelling up the prosperity of the United Kingdom across all regions of the country, the PM also tempered his comments by stating it will “take time” to overhaul and bolster the UK economy. The CBI warned that the government would need to deliver on all promises as just high-wages alone without improved productivity would fuel inflation and rising prices.

GBP

Sterling is well-bid against most majors overnight. A pricing analyst, Cornwall Insights, forecast that that the energy price cap will rise to around £1,660 by next summer. That is about 30% higher than the record £1,277 level for the cap set for winter 2021-22, which began at the start of October. Commemorations are being held to mark the 20th anniversary of the start of UK military operations in Afghanistan. Wreaths were laid in memory of the 457 British personnel killed during the conflict. UK troops left Afghanistan at the end of August, bringing an end to the 20-year war. UK wholesale gas prices hit a record high before falling after Russia said it was boosting supplies to Europe. Russia President Vladimir Putin appeared to calm the market after gas prices had risen by 37% in 24 hours to trade at 400p per therm on Wednesday.

EUR

The euro is lower against sterling and higher against the dollar. Olaf Scholz eyes a narrow path to a German ‘traffic light’ coalition with the Greens and the FDP, after Scholz’s Social Democrats won the German election. If negotiations on a traffic light alliance are successful then it will mark a decisive break from Chancellor Angela Merkel, after 16 years since the centre-right CDU/CSU took power. EU leaders back ‘enlargement’ for the Balkans at an EU summit in Slovenia but have put the breaks on exactly when it may happen. At the centre piece of Slovenia’s EU Council Presidency, Commission President Ursula Von der Leyen proclaimed their support for six Western Balkans nations to join their club, while simultaneously admitting that the entry process was effectively stalled.

USD

The dollar is lower against most majors in early morning trade. Biden plans to meet virtually with Xi Jinping this year. Chinese diplomat Yang Jiechi said Beijing attaches importance to Biden’s recent positive remarks and noted that Washington said it doesn’t intend to contain China or engage in a new cold war. Data today are expected to show the U.S. labor market continues to recover. Consensus sees weekly jobless claims dipping to 348,000, while the latest whisper number sees a smaller drop to 354,000. The U.S. is considering pushing IMF Managing Director Kristalina Georgieva to resign amid an ethics scandal. The fund’s executive board met with Georgieva as part of its ongoing review of a World Bank over allegations that she pressured bank staff to adjust a ranking in China’s favour.

Markets

Stocks rose along with U.S. equity futures Thursday, bolstered by progress on the debt-ceiling impasse in Washington and a rebound in Chinese technology shares. Treasuries dipped as traders await key jobs data. MSCI Inc.’s index of Asia-Pacific stocks rose for the first session in five. Hong Kong jumped as a technology gauge bounced from a record low. U.S. and European futures rose after the S&P 500 and Nasdaq 100 swung higher on a possible deal to boost the debt ceiling into December. Russia’s offer to ease Europe’s energy crunch and President Joe Biden plans to meet virtually with Chinese President Xi Jinping also aided sentiment, as did the European Central Bank’s study of a new bond-buying program to prevent any market turmoil when emergency purchases get phased out.

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

7:45 a.m.: Switzerland Sept. unemployment rate
8:00 a.m.: Germany Aug. industrial production
8:00 a.m.: Norway Aug. industrial production
9:00 a.m.: Switzerland Sept. foreign currency reserves
9:00 a.m.: Riksbank’s Jansson speech
10:00 a.m.: Italy Aug. retail sales
10:30 a.m.: ECB’s Elderson and Lane speak
10:30 a.m.: Spain to sell bonds and linkers
10:50 a.m.: France to sell bonds
11:00 a.m.: Hungary to sell bonds
1:20 p.m.: Central Bank Chiefs of Mexico, Brazil, France at BIS event
1:30 p.m.: ECB publishes account of Sept. rate decision
2:00 p.m.: ECB’s Holzmann delivers opening remarks at climate event
3:00 p.m.: ECB’s Schnabel speaks
3:00 p.m.: ECB’s Lane speaks
5:45 p.m.: ECB’s Lane speaks

10/07 – 10/08 B20 event with Draghi, Yellen, Lagarde

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