September 15, 2022

“The dollar remains near its 20-year high. The odds of a historic 100bp interest rate hike by Fed next week is currently more than 20% following the greater-than-expected August inflation data. EURUSD is trading below parity once again. Later today, US retail sales and industrial production figures for August will be released, which will provide more clarity on the state of the economy.”

Sam Cornford, Partner – Head of Trading

Main Headlines

A freight railroad strike in the US will have “devastating” consequences for the economy and will significantly set back any progress made in the past year to curb US inflation rates, Jay Timmons the president and CEO of the National Association of Manufacturers warned yesterday. Unions representing rail workers turned down a proposed deal with rail carriers yesterday and are reportedly planning to move forward with a strike demanding further concessions from railroads that would improve working conditions for members. The Biden administration has been involved in the negotiations to avert a strike, which the Association of American Railroads (AAR) says would cost upward of $2 billion per day, hurting businesses and consumers alike.

Kwasi Kwarteng seeks to scrap the cap on bankers’ bonuses in a bid to make the City of London more globally competitive. The new chancellor is reported to be considering the move as he steps up government attempts to boost economic growth. However, ending the cap – which was introduced in 2014 by the European Union – is likely to draw fierce criticism from the government’s political opponents. The cap limits the amount bankers can receive in bonuses to twice their annual salary. The new chancellor will unveil his plans to boost economic growth in a mini-Budget when parliament sits again next week following the period of national mourning for the Queen’s death.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. The UK Government has promised to backdate energy bill support for businesses, amid concerns that the promised scheme for struggling firms could be delayed for several weeks. Officials are working on a strategy to support businesses through what is expected to be a difficult winter, after the government announced last week an unprecedented package of energy support for UK households. Meanwhile, the cost of living has soared in the UK – with a surge in egg, milk and cheese costs pushing food inflation to its highest level for 14 years. The war in Ukraine has continued to help drive up prices at supermarket tills.

EUR

Euro is weaker than most major currencies in the early morning trade. The European Union announced plans yesterday to raise €140bn by capping revenues for non-gas energy suppliers as it looks to tackle the energy crisis. Other measures under consideration include a windfall tax on fossil fuel companies and steps to cut energy use to avoid blackouts this winter. However, the bloc has stepped back from an initial plan to cap Russian gas prices amid division among member states over whether such a move would help or harm efforts to secure energy supplies.

USD

The dollar is well bid against most major currencies overnight. The Federal Reserve is likely to approve a historic, full percentage point interest rate hike when officials meet next week following the hotter-than-expected August consumer price index data. That would be the first rate hike of its size since the Fed started announcing moves in the overnight federal funds rate in 1994 and would put the benchmark range between 3.25% and 3.50%, the highest since the 2008 financial crisis. Jerome Powell, chairman of the US Federal Reserve, has acknowledged the risk of a recession but maintained that it’s more important for the Fed to tame inflation, even if an economic downturn ensues.

Markets

US stocks rally to close higher after sharp selloff. Wall Street rebounded after stocks on Tuesday saw their worst fall in two years on fears about higher interest rates fuelled by persistent inflation. The S&P 500 rose 13 points, or 0.3%, to close Wednesday at 3,946. The Dow rose to 31,135, or 0.1%, a day after the blue-chip index lost more than 1,250 points. The Nasdaq gained 0.7%. European markets were choppy at the start of the trading day today. The pan-European Stoxx 600 opened in the red before moving to a 0.34% gain through the first hour of trading, as banking stocks added 1.75%. The euro zone bank index hit its highest level since June 10.

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

8:00 a.m.: Germany Aug. wholesale price index
8:45 a.m.: France Aug. CPI
9:00 a.m.: Hungary one-week deposit rate
10:00 a.m.: Poland Aug. CPI
10:30 a.m.: UK Aug. BOE/Ipsos inflation next 12 months
11:00 a.m.: Euro-area July trade balance
11:00 a.m.: Greece 2Q unemployment rate
11:15 a.m.: ECB’s Guindos speaks
1:00 p.m.: ECB’s Centeno speaks
Xi Jinping expected to meet Vladimir Putin in Uzbekistan

Corporate Events

Earnings include Renishaw

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