22 June 2021

“Jay Powell’s Monday comments propped up the dollar, but it will be his full testimony later today that should set this week’s tone in the markets. Beyond that, market participants will be anticipating US labour market data, to gauge whether it impacts the myriad of Fed members’ voices we are hearing.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Federal Reserve Chairman Jerome Powell said that job growth should show strong recovery and that inflation had “increased notably” but should move back toward the U.S. central bank’s 2% target once supply imbalances resolve. In a written testimony prepared for his Tuesday appearance before the House Select Subcommittee on the Coronavirus Crisis, Powell cited increases in oil prices and a “rebound” in spending as the U.S. economy reopens. The hearing aims to focus on lessons learned by the Fed, which rolled out large-scale lending programs early in the health crisis.

UK government borrowing was in a better shape than expected in May, running well below levels seen at the height of the coronavirus. Net public sector borrowing, excluding public sector banks, was estimated at £24.3bn in May, according to the Office for National Statistics. The figure was £19.4bn lower than in May last year and was also below the £28.5 billion pounds predicted by the Office for Budget Responsibility. However, it was still the second highest borrowing figure for May since monthly records began in 1993.

GBP

Sterling is weaker against most major currencies this morning. Downing Street on Monday vowed to “stick” to the government’s “triple lock” pledge for uprating the state pension, despite chancellor Rishi Sunak having questioned how the government could afford it given growing public spending pressures after the coronavirus pandemic. Meanwhile, Boris Johnson warned UK holidaymakers and businesspeople that are planning trips overseas will not return to normal until next year at the earliest, in a fresh blow to the travel sector. He said the government’s priority was keeping people safe in the UK.

EUR

The euro is lower against the dollar and higher against the pound overnight. ECB President Christine Lagarde said accelerating U.S. inflation that prompted the Fed to shift its view of price risks will have only a limited impact in the euro area. Spillovers can occur “through the direct channel of imported goods originating in the U.S. and through several indirect trade or expectations mechanisms,” she told lawmakers in the European Parliament on Monday. Still, the overall effects on euro-area inflation “are expected to be moderate.”

USD

The dollar is higher against other majors in the early morning trade. John Williams, the president of the Federal Reserve Bank of New York, said the US economy was not yet ready for the central bank to start pulling back its hefty monetary support, even though the outlook has become rosier. Elsewhere, Dallas Fed President Robert Kaplan said he favours starting the process of tapering “sooner rather than later,” while his counterpart from St. Louis, James Bullard called it “appropriate” that policy makers last week opened the taper debate. The comments were delivered amid high sensitivity in financial markets to Fed policy.

Markets

Japanese shares outperformed, helping a gauge of Asia-Pacific stocks to the biggest climb in about three weeks. S&P 500 contracts edged up after the index rallied overnight, aided by a revival of the value trade in sectors like energy and financials. European equity futures were in the green. Yields on longer-dated Treasuries rebounded in the U.S. session Monday, even as short-end rates remained firmly anchored. Brent oil hit $75 a barrel for the first time in more than two years on signs of a rapidly tightening market. Bitcoin sank closer to $30,000 after China intensified its cryptocurrency clampdown.

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

8:00 a.m.: U.K. May public finances

9:00 a.m.: Turkey June consumer confidence

9:30 a.m.: Sweden May unemployment

11:15 p.m.: ECB’s Rehn speaks

1:00 p.m.: Turkey sells bonds

2:00 p.m.: Hungary rate decision

4:00 p.m.: Euro-Area June consumer confidence

4:00 p.m.: ECB’s Lane speaks

7:30 p.m.: ECB’s Schnabel speaks

8:00 p.m.: Fed’s Powell testifies to Congress

U.S.’s Blinken travels to Europe

EU general affairs council meets

U.K.’s Frost gives evidence to parliament

Corporate Events

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