September 12, 2022
“Last week, the ECB raised interest rates by 75bp, the largest hike in ECB history. Decisions were unanimous and the ECB expects to raise interest rates further over the next several meetings. EURUSD recovered some losses and currently at the highest level since mid-August. As this week’s BoE meeting postponed until September 22nd, the data calendar will be the main focus. CPI inflation figures for the US on Tuesday and the UK on Wednesday will be closely watched.”
Sam Cornford, Partner – Head of Trading
US President Joe Biden invoked the memory of America’s united response to the September 11, 2001 attacks by al Qaeda and vowed to “never give up” in the face of terrorist threats in a solemn commemoration yesterday at the Pentagon. Biden’s remarks about national unity on the 21st anniversary of the attacks stood in contrast to his warnings in recent days about dangerous divisions in American society, including that some Republicans who support former President Donald Trump’s agenda pose a threat to democracy.
King Charles III will embark on a tour of the United Kingdom this week, in a public show of commitment to the architecture of the UK as it comes under increasing strain. The new King will address both houses of parliament in London today before embarking on a programme of visits to Scotland, Northern Ireland, and Wales. This will begin in Edinburgh, where the body of the late Queen Elizabeth II arrived yesterday after a six-hour procession from her Scottish summer retreat of Balmoral witnessed by large crowds along the route. Liz Truss, the new British prime minister, will accompany King Charles at church services during his tour under the terms of long-planned official arrangements.
Sterling is stronger against the dollar and weaker against euro this morning. UK’s economy grew by less than expected in July, with a fall in power production possibly reflecting the sharp climb in energy tariffs and the construction sector also hit by the leap in inflation, official data showed this morning. Gross domestic product grew by 0.2% from June. In the three months to July, GDP was flat compared with the previous three-month period. Last month, the Bank of England forecast that Britain would slip into a recession at the end of 2022 and not come out of it until early 2024, due in large part to the hit to living standards from the energy price surge. The BoE is expected to raise interest rates again on Sept. 22 as it seeks to combat an inflation rate above 10%.
Euro is well bid against most major currencies overnight. The European Union’s Brexit chief Maros Sefcovic said he could reduce physical customs checks across the Irish Sea to just a few lorries a day. Physical checks would only be made when there is reasonable suspicion of illegal trade smuggling, illegal drugs, dangerous toys, or poisoned food. There is almost no difference between the United Kingdom’s demand for “no checks” and the EU’s offer of “minimum checks, done in an invisible manner”.
The dollar is weaker than most major currencies in the early morning trade. Markets strongly expect the central bank to take up its benchmark borrowing rate by 0.75 percent point, which would be the third consecutive move of that magnitude and the fastest pace of monetary tightening since the Fed began using the benchmark funds rate as its chief policy tool in the early 1990s. The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose 6.3% from a year ago in July — 4.6% excluding food and energy. That’s still well above the central bank’s 2% long-run goal, and Fed’s Christopher Waller last Friday said inflation remains “widespread” even with the recent softening.
The pan-European Stoxx 600 edged 0.3% higher in early trade, with autos adding 2.2% to lead gains as most sectors and major bourses entered positive territory. Health care stocks fell 0.5%. Dow Jones Industrial Average futures were little changed. S&P 500 futures were down 0.06% and Nasdaq 100 futures lost 0.06%. Global markets are gearing up for the latest reading of U.S. inflation, with the August data set to be released tomorrow.
Main Economic Data/Central Banks/Government (All Times CET)
8:00 a.m.: UK July GDP, factory output, trade balance
9:00 a.m.: Turkey July current account
9:30 a.m.: ECB’s Guindos speaks
10:00 a.m.: Italy July industrial production
11:30 a.m.: Germany to sell bills
12:00 p.m.: UK to sell bills
2:00 p.m.: ECB’s Schnabel speaks
2:50 p.m.: France to sell bills
Germany July current account balance
USDA’s WASDE crop report
The SALT conference takes place in New York City
IAEA Board of Governors meet in Vienna
Earnings include Oracle