October 7, 2022

“The greenback held onto robust overnight gains, particularly against the Japanese yen, buoyed by hawkish comments from the Federal reserve and investors awaiting on a key jobs report later today to find clues on how much further rates will increase.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The White House said no action was off the table a day after Opec+ angered Washington with sharp cuts to global oil supply, as the Biden administration considered responses to contain energy prices including new releases from the US Strategic Petroleum Reserve. The Opec+ cartel led by Saudi Arabia and Russia agreed to lower production targets by 2mn barrels a day, or roughly 2 per cent of global oil consumption. Oil markets rose yesterday, with Brent crude reaching $94 a barrel. Europe’s energy crisis would likely be worsened by such a move, as the continent imports significant quantities of fuel from the US and is soon to halt all seaborne Russian oil imports.

Millions of British households will be asked to cut back on energy consumption by National Grid this winter, as it warned them to prepare for rolling three-hour blackouts in the “extreme” case of gas shortages and reduced electricity imports from the rest of Europe. But despite the bleak assessment, Liz Truss’s government has resisted mounting a public information campaign of its own to try and reduce consumption. The aim is to try to reduce electricity demand by more than 2 gigawatts when supplies are low, the equivalent output of two of the UK’s fleet of five nuclear power stations.

GBP

Sterling is well bid against most major currencies overnight. UK regulators began a new round of licences to enable companies to explore for oil and gas in the North Sea, as climate campaigners signalled, they would aim to mount a legal challenge. The hiring frenzy that drove vacancies in the UK labour market to record levels earlier this year is petering out, according to a survey showing recruitment activity fell to a 19-month low in September. Boris Johnson’s plan to slash 91,000 jobs in the civil service is being watered down by new prime minister Liz Truss with the target unlikely to be hit by the end of the current parliament.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Governments across Europe have been grappling with ways of protecting their consumers from rising energy bills, as the market continues to be hit by Russia’s war in Ukraine. Spain and Belgium have issued warnings about the consequences of Germany’s huge fiscal stimulus package for the EU single market as the bloc attempts to muster a unified response to soaring energy prices. Credit Suisse Group offered to buy back debt securities for cash worth approximately 3 billion Swiss francs just as it puts the finishing touches on a planned overhaul.

USD

The dollar is weaker than most major currencies in the early morning trade. Top officials at the Federal Reserve pushed back on speculation that the US central bank will soon pause its aggressive monetary tightening campaign, emphasising instead the need for further interest rate increases. Joe Biden has issued a mass pardon for all people with convictions for “simple possession” of marijuana under federal law, in a major push for drug reform just one month before crucial midterm elections. The newest US exporter of liquefied natural gas has signed a deal to increase exports to Germany.

Markets

US equity-index futures fell as investors awaited the latest payrolls report for clues on the monetary-policy path after a raft of Federal Reserve officials doused expectations for a quick halt to rate hikes. Contracts the S&P 500 and Nasdaq 100 indexes slid at least 0.3% each even as the equity benchmarks were poised for the best weekly advance since June. Europe’s Stoxx 600 extended declines into a third day. Treasuries were marginally lower, with the two-year rate holding at 4.27%. US benchmark bond yields are heading for a 10th week of increases, as the Fed stays resolute in its fight against inflation despite recent data suggesting a cooling of the economy.

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

7:45 a.m.: Switzerland Sept. unemployment rate
8:00 a.m.: Germany Aug. retail sales, industrial production
8:00 a.m.: Norway Aug. industrial production
8:00 a.m.: Sweden Sept. budget balance
8:45 a.m.: France Aug. trade balance
9:00 a.m.: Czech Republic central bank minutes; Aug. industrial output
9:00 a.m. Switzerland Aug. foreign currency reserves
10:00 a.m.: Malaysia’s annual budget
10:00 a.m.: Italy Aug. retail sales
12:25 p.m.: BOE’s Ramsden speaks
2:30 p.m.: US Sept. nonfarm payrolls
6:00 p.m.: Russia Sept. CPI
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