Thursday 29 July, 2021

“The dollar slipped after yesterday’s FOMC Meeting, reaching two-week lows as Jerome Powell took a softer tone and avoided giving clear guidance about when the tapering of stimulus will begin. Sterling surged off the back of re-opening optimism and amid falling Covid-19 cases in the United Kingdom injecting confidence into the UK economy.”

Tim Hallinan, Trading Director

Main Headlines

The Fed indicated it is slowly moving towards trimming its emergency stimulus introduced at the start of the pandemic, signalling that the process may start this year. The FOMC said the economy has made progress toward meeting jobs and inflation targets that would allow tapering of state support. However, Fed Chair Jerome Powell was cautious in his comments, stating that “there’s still a way to go”. The bank left monetary policy levers unchanged. Notably, Powell announced that inflation is likely to remain on the rise without saying when price pressures would stop but continued to refer to it as “transitory.”

The UK economy has been upgraded by the IMF, who have forecasted that economic growth in the UK would reach 7% in the coming year as the country recovers from the pandemic, the largest increase in growth forecast by the IMF. The UK is now predicted to have the fastest growth of G7 countries along with the United States, following the country having the deepest contraction in economic growth in 2020. Chancellor of the Exchequer, Rishi Sunak, welcomed the IMF’s forecast as a positive sign that the economy is rebounding faster than previously thought.

GBP

Sterling is well-bid against the euro overnight. The UK and the EU have been criticised for taking a “fundamentally flawed” approach to the Northern Ireland Protocol talks. A House of Lords committee has criticised both parties for a lack of clarity, transparency and readiness when discussing the application of the Protocol signed in 2019 as part of the UK’s withdrawal agreement. The cost of the UK’s national flagship “trade yacht” intended to be used to support Boris Johnson’s international diplomatic efforts, has already risen by £100mn before a contract has even been awarded, admitted Defence Secretary Ben Wallace.

EUR

The euro is higher against the dollar and lower against sterling in early morning trade. EU Economy Chief, Paolo Gentiloni said the European Union needs to stop the chaotic application of its own fiscal rules, calling for a far-reaching legislative overhaul to help drive public investment and growth in the bloc. Inflation is on the rise in Germany and Spain in July. Spain’s EU-harmonized CPI reportedly rose 2.9%, due to rising hotel prices as travel returned to more normal levels during the tourist season. Elsewhere in Europe, Germany’s CPI is forecast at 2.9%.

USD

The dollar is lower against most majors overnight. President Biden’s $1trn infrastructure deal advances through Congress following a key vote, clearing a crucial legislative hurdle with bipartisan support after months of painstaking negotiations. Speaker of the House of Representative, Nancy Pelosi, criticized Republican and House minority leader Kevin McCarthy for criticizing mask guidance – a policy reversal in the US following rising delta variant cases. Further arms control talks took place between senior US and Russian officials in Geneva on Wednesday.

Markets

Asian stocks jumped Thursday on China’s efforts to soothe market nerves and the Federal Reserve’s reassurance that it’s moving very gradually toward tapering stimulus. Hong Kong and China outperformed, paring steep losses this week sparked by Beijing’s crackdown on private enterprises. A Hang Seng tech index surged on a report that China will continue to allow local firms to go public in the U.S. S&P 500 futures edged back and Nasdaq 100 contracts dipped after Facebook Inc. fell in extended trading. European futures slipped. The central bank boosted cash injections into the financial system to ease anxiety. Treasury yields were steady and the dollar slipped in the wake of the Fed meeting. Chair Jerome Powell said there was still some way to go to meet the conditions for tapering.

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

8:45 a.m.: France June PPI

9:00 a.m.: Sweden July Economic Tendency Survey, Consumer Confidence

9:00 a.m.: Spain July CPI, 2Q Unemployment Rate

9:55 a.m.: Germany July Unemployment Change, Unemployment Claims

10:00 a.m.: Italy June Hourly Wages

10:30 a.m.: UK June Net Consumer Credit, Mortgage Approvals, M4 Money Supply

11:00 a.m.: Euro-area July Consumer Confidence

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

12:00 p.m.: Portugal June Retail Sales

2:00 p.m.: Germany July CPI

2:30 p.m.: U.S. 2Q GDP

Corporate Events

Earnings include Mastercard, Comcast, L’Oreal, Merck & Co, AstraZeneca, Shell, Diageo, Enel, Air Liquide, EDF, ArcelorMittal, Repsol

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