September 8, 2022

“The European Central Bank’s Governing Council is due to meet today and is widely expected to agree an increase in interest rates. The meeting poses some event risk for the European currency as current pricing indicates that the market is leaning towards a 75bps increase – nevertheless, recent comments from ECB officials suggest uncertainty on the magnitude of the rate hike.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Lael Brainard, vice-chair of the Fed, has warned the US central bank must hold its nerve as it tries to tame soaring inflation, adding her name to the list of policymakers sounding a hawkish note on future rate rises. The leading Federal Reserve official reinforced expectations that the central bank would opt for a third consecutive 0.75 percentage point rate rise at its meeting later this month. The forceful intervention from Brainard comes as investors increased their bets on the Fed implementing another increase of 75 basis points when officials meet on September 21.

The pound has fallen to its weakest levels since 1985, reflecting the daunting scale of the economic challenge new prime minister Liz Truss faces as she prepares to unveil an emergency energy package. Truss is due to give details of the state intervention to shield households and companies from rising energy bills. Government insiders said the total gross cost over two winters could hit £150bn. Truss told MPs she would give people “certainty to make sure that they are able to get through this winter,” but ministers were still trying to finalise the details of support.

GBP

Sterling is weaker than most major currencies in the early morning trade. The Bank of England’s chief economist said that plans by Liz Truss for a freeze in energy bills for households and businesses was likely to force the central bank to raise interest rates despite bringing down the rate of inflation in the months ahead. The Recruitment and Employment Confederation’s measure of permanent hiring edged up from July’s 17-month low while temporary hiring grew at the weakest pace since February 2021. Growth in vacancies slipped to an 18-month low.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Emmanuel Macron defused popular rage during the yellow vest protests in 2019 with the “grand national debate” that convened citizens, trade unions and politicians to a series of public meetings to discuss everything from the cost of living to tax fairness. Poland’s prime minister, Mateusz Morawiecki, said that a temporary suspension of the EU emissions trading scheme to help lower electricity costs would give “a response to Putin, showing him that we are able to react very quickly.”

USD

The dollar is well bid against most major currencies overnight. US president Joe Biden has warned new UK prime minister Liz Truss against unilaterally ripping up Britain’s deal with the EU over trading arrangements in Northern Ireland, in a sign that the issue could sour transatlantic relations. The US wholesale gas market is likely to average $9 a million British thermal units for the remainder of the year. The price is a fraction of the gas price in Europe, giving traders huge financial incentives to send fleets of liquefied natural gas tankers overseas.

Markets

European stocks edged higher as investors prepared for potential unprecedented monetary policy tightening by the region’s central bank later today. Bonds climbed after Australia’s central bank chief signalled a possible end to jumbo interest-rate hikes. Europe’s Stoxx 600 Index gained 0.4%, with the basic resources and insurance sectors leading the advance. US equity futures were little changed following a near-2% advance in the S&P 500 and Nasdaq 100 yesterday. Treasuries pushed higher, lowering the US 10-year yield to 3.25%, after Reserve Bank of Australia Governor Philip Lowe staked out an outlier position among G-10 currency nations.

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

7:45 a.m.: Switzerland Aug. unemployment
8:00 a.m.: Norway July GDP
8:45 a.m.: France July trade
12:00 p.m.: Ireland Aug. CPI, July industrial production
1:00 p.m.: Ukraine central bank sets key rate
2:15 p.m.: ECB rate decision
2:30 p.m.: US initial jobless claims
2:45 p.m.: Lagarde’s press briefing
3:10 p.m.: Powell speaks at Cato Institute
5:00 p.m.: EIA US crude oil inventory report

Corporate Events

Earnings include Zscaler, DocuSign, Melrose Industries, RH

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