September 7, 2022

“Stocks and commodities plunged as expectations for aggressive Federal Reserve rate hikes, driven by new economic data, lifted the dollar overnight. The safe haven hit a 24-year high against the Japanese yen this morning, which slumped to a level that may leave it on track for the worst year on record.”

Tim Hallinan – Trading Director

Main Headlines

A blistering heatwave has pushed California’s electricity demand to record highs, prompting the state’s governor to extend emergency actions until the end of the week to reduce power consumption and bring more energy online. Gavin Newsom said the heatwave was on track to set a record for September, putting a strain on the energy grid and raising the threat of blackouts. The California Independent System Operator, which co-ordinates the flow of electricity across most of the state, forecast power use of more than 52,000 megawatts late on Tuesday afternoon.

Britain’s new prime minister is setting up a policy clash with the Bank of England that economists think will lead to a jump in interest rates before Christmas. Liz Truss’s plans for generous energy subsidies will boost the economy, lowering measured inflation and helping households maintain their spending levels, but this is likely to force the central bank to raise rates faster to keep inflation under control. Financial markets are betting that the bank’s official interest rate will rise from the current level of 1.75 per cent to more than 3 per cent in December in a jump designed to shock households and companies.

GBP

Sterling is weaker than most major currencies in the early morning trade. HM Revenue & Customs has invited wealthy taxpayers to take part in a “pre-filing” conversation this autumn ahead of completing their tax return, a move which advisers warned could put them at unnecessary risk. UK savers have fled funds investing in British business, pulling £6.6bn from these assets so far this year, making 2022 already the biggest year of outflows in a decade. Liz Truss is to pull back from an early confrontation with the EU over post-Brexit trading rules with Northern Ireland.

EUR

Euro is well bid against most major currencies overnight. Vladimir Putin warned of a looming global food crisis and said he would discuss amending a landmark grain deal with Ukraine to limit the countries that can receive cargo shipments. Norway’s Prime Minister, Jonas Gahr Store, said the country is open to discussing potential long-term gas agreements and price caps with European partners to help ease the energy crisis. The European Union said it had secured an additional 170,920 doses of the monkeypox vaccine, amid concerns about the outbreak of the disease.

USD

The dollar is stronger against sterling and weaker against euro this morning. The US Commerce Department said it hopes by February to begin seeking applications for $39 billion in government semiconductor chips subsidies to build new facilities and expand existing US production. Juul Labs, the Altria-backed e-cigarette group, must pay $438.5mn under a settlement after their two-year investigation concluded it had “cynically” advertised vaping products to underage users. United Airlines said it plans to end service in October to New York’s John F. Kennedy Airport if the Federal Aviation Administration does not grant the air carrier additional flights.

Markets

Stocks and commodities dropped as the prospect of aggressive Federal Reserve monetary tightening lifted a dollar gauge to another record today. Europe’s Stoxx 600 Index fell 0.8%, with tumbling miners and energy companies leading the declines. Contracts on the S&P 500 and Nasdaq 100 slipped. An Asian equity gauge slid to levels last seen in the pandemic fallout of 2020. Greenback strength stoked by higher Treasury yields and worries about the economic outlook is rippling across the world, leading to tighter financial conditions that could further undermine risk assets. Traders are bracing for a European Central Bank rates decision due on Thursday.

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

8:00 a.m.: Germany July industrial production
8:00 a.m.: Sweden July industrial output, Aug. budget balance
8:00 a.m.: Norway July industrial production
9:00 a.m.: Switzerland Aug. foreign currency reserves
10:00 a.m.: Italy July retail sales
11:00 a.m.: BOE Governor Andrew Bailey and MPC testify to Parliament
11:00 a.m.: Euro-area 2Q household consumption
11:00 a.m.: Euro-area 2Q GDP
8:00 p.m.: The Fed releases its Beige Book

Corporate Events

Earnings include Nio, Copart, GameStop, American Eagle
Apple event

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