September 2, 2021

“The dollar has been weighed by a weaker-than-expected US labour data, which is currently being used to gauge the tapering timing. It was also pressured by the euro climbing to a one-month high after a survey showed strong European manufacturing growth coupled with inflationary pressure. The increasingly public disagreements regarding monetary support at the ECB mean that the euro could move in either direction in the medium term.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The supply of the US treasury bills has been cut this month after federal spending limits were reinstated, driving prices higher and reigniting problems for the money market fund industry — which has already been bailed out by the Federal Reserve once this year. Treasury bills — US bonds which mature in a year or less — were already scant this year after the US lengthened the average duration of its new debt issues. Supply then took another hit after Congress failed to pass legislation in July that would have allowed the Treasury department to issue new debt — known as raising the debt ceiling.

The UK has drawn up secret contingency plans to move its Trident nuclear submarine bases from Scotland to the US or France in the event of Scottish independence. Another option under consideration is for the UK to seek a long-term lease for the Royal Navy’s nuclear bases at their current location in Faslane and Coulport on the west coast of Scotland. This would create a British territory within the borders of a newly separate Scotland, said people briefed on the plans. The governing Scottish National party returned to power in May and has pledged to ban all nuclear weapons in an independent Scotland.

GBP

Sterling is weaker versus the euro and higher versus the dollar this morning. About 500,000 people in the UK with severely weakened immune systems will be offered a third dose of a Covid-19 jab in an effort to protect them from the virus ahead of the winter months, UK health secretary Sajid Javid said on Wednesday. In a report published Thursday, the Institute for Public Policy Research warned of a hidden “jobs gap” – about 2.1 million positions that remain furloughed or lost – as the government prepares to end its flagship wage support program at the end of the month.

EUR

The euro is stronger against the dollar and weaker against the pound overnight. While euro-area central bankers were mostly united behind the measures taken to guide the economy through the Covid-19 recession, there are divergent views at the ECB about when to shift the institution away from its crisis mode. While most view the current inflation spike as transitory, some worry that that letting ultra-loose policy run for too long risks letting the situation getting out of control. Two hawkish Governing Council members, Austria’s Robert Holzmann and Klaas Knot of the Netherlands, kicked off a public exchange of views this week.

USD

The dollar is lower against most majors in the early morning trade. Joe Biden sought to reassure Ukrainian counterpart Volodymyr Zelenskiy that the US would counter “Russian hostility” toward his country as the leaders met for the first time at the White House. The chair of the US Securities and Exchange Commission has warned that cryptocurrency trading platforms are putting their own survival at risk unless they heed his call to work within the nation’s regulatory framework. Gary Gensler said crypto assets were no different than any others when it came to investor protection, guarding against illicit activity and maintaining financial stability.

Markets

Chinese tech shares listed in Hong Kong came off their highs after criticism of ride-hailing firms highlighted risks from the nation’s ongoing crackdown on private industries. China’s overall market was steady, with traders assessing a central bank step to cushion the economy by helping smaller firms. U.S. and European equity futures fluctuated. Overnight, the Nasdaq 100 edged up to a record and the S&P 500 was little changed. The defensive flavour to trading came amid data suggesting a slower US labour market recovery. Ten-year U.S. Treasury yields hovered around 1.3%. U.S. payrolls data due Friday will offer clues on the economy and a possible timeline for a reduction in the Fed’s $120 billion of monthly bond purchases.

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

8:30 a.m.: Switzerland August CPI, July retail sales

9:00 a.m.: Switzerland 2Q GDP

9:00 a.m.: Spain August unemployment

10:30 a.m.: Spain to sell bonds, linkers

10:50 a.m.: France to sell bonds

11:00 a.m.: Euro-area July PPI

11:00 a.m.: Riksbank’s Floden briefing on SWESTR

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

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

2:30 p.m.: Riksbank’s Ingves monetary policy speech

3:00 p.m.: Russia weekly gold and forex reserve

Corporate Events

Earnings include Broadcom, Docusign, Coca-Cola Europacific Partners, Barratt Developments, Melrose Industries, Osram

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