September 15, 2021

“The dollar drifted within recent ranges against major peers today after softer-than-expected U.S. inflation raised doubts about a taper of Federal Reserve stimulus this year. The Fed will hold a two-day monetary policy meeting next week, raising investors’ interests on whether a tapering announcement will be made.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Biden suggested he hold a face-to-face summit with Chinese president Xi Jinping during a 90-minute call but failed to secure an agreement from his counterpart, leading some US officials to conclude that Beijing is continuing to play hardball with Washington. The purpose of the submit would have been in an effort to break an impasse in US-China relations, but the Chinese leader did not take Biden up on the offer and instead insisted Washington adopt a less strident tone towards Beijing. The call was a chance to test if Xi was willing to engage seriously after several diplomatic meetings between US and Chinese officials garnered little progress.

The UK PM’s government has been forced to delay imposing checks on EU goods entering the UK until mid-2022 as it attempts to stop Brexit further exacerbating supply chain problems. The move means British exports to the EU are subject to full checks, while imports into the UK by European competitors are mostly free of paperwork and border controls. The wholesale delay to the UK border regime was announced by Lord David Frost, Brexit minister, in a low-key written answer on a day dominated by government Covid-19 announcements. Frost said the delay to checks, which will particularly affect food and agricultural products, was in response to the supply chain problems, which he blamed on the coronavirus pandemic.

GBP

The pound is well bid against most majors overnight. The UK’s process of buying military equipment has been hampered by a desire for “110% perfection” but the increasing reliance of weapon systems on electronics and software could help solve the problem, according to Britain’s defence procurement minister. Jeremy Quin said the long-running problem was a result of an attitude in the armed forces that new equipment had to have “every single mod com that is going to be needed in 10 years’ time” in an attempt to ensure it is future-proof. Quin’s remarks underline the UK’s poor record on military procurement, which is littered with projects running late and over budget. The latest is a £5.5bn programme to procure a family of armoured vehicles for the army, known as Ajax, equipped with the latest digital sensors.

EUR

The euro is higher than the dollar and lower than the pound in the early morning trade. The leader of Germany’s liberal Free Democrats has set strict conditions for joining a possible coalition with the Social Democrats and Greens after next week’s national election, demanding tax cuts, curbs on new borrowing and a return to pre-pandemic spending rules. “The prerequisite for us joining any coalition is that we can’t have tax increases and we respect the constitutional debt brake,” said Christian Lindner, leader of the FDP. With 11 days to go until an election that will decide who succeeds Angela Merkel as chancellor, polls suggest power could potentially pass from her centre-right CDU/CSU bloc to a three-party coalition made up of the SPD, Greens and FDP.

USD

The dollar is weaker than most majors this morning. US consumer prices rose at a more moderate pace in August, in a sign that inflationary pressures associated with the economic reopening from Covid-19 lockdowns are easing slightly after reaching a 13-year high. The consumer price index published by the Bureau of Labor Statistics on Tuesday rose 5.3% in August from a year ago — just below the 5.4% level reported previously, which is the highest since 2008 and in line with the 5.3% forecast by economists. Month-over-month price gains slowed to 0.3% from July. That is markedly lower than the 0.9% jump reported between May and June and a drop-off from the most recent 0.5% rise from June to July.

Markets

Asian stocks fell on Wednesday while Treasuries retained gains amid concerns about a slower recovery from the pandemic and risks for the global economy from elevated inflation. Shares retreated in Japan, Hong Kong and China, where the economy weakened on steps to curb a Covid-19 outbreak. Beijing’s escalating regulatory overhaul hurt China’s technology sector and Macau casino stocks. U.S. and European futures were steady after the S&P 500 dipped overnight. Chinese data showed a sharp slowdown in retail sales growth as virus curbs hit consumer spending and travel during the peak summer holiday break. The debt crisis at China Evergrande Group is also in focus, with officials notifying banks that the company won’t be able to make loan interest payments due Sept. 20. Gold was at $1,803.19 an ounce, down 0.1%.

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

8:00 a.m.: U.K. August CPI

8:45 a.m.: France August final CPI

10:00 a.m.: Italy August final CPI

10:30 a.m.: Denmark to sell bonds

11:00 a.m.: Euro-area July industrial production

11:00 a.m.: U.K. to sell bonds

11:00 a.m.: Sweden to sell bills

11:00 a.m.: Hungary to sell bonds

11:30 a.m.: Portugal to sell bills

1:00 p.m.: Russia to sell bonds

2:30 p.m.: ECB’s Schnabel speaks

5:00 p.m.: ECB’s Lane speaks at Webinar

Corporate Events

Earnings include Industria de Diseno Textil, Carnival Corporation, Auto1 Group, Darktrace, Sovcomflot

 

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