23 June 2021

“The Fed appears calm on inflationary pressure in the US economy, sending the message around the world that the dollar’s reserve status supporting the global economy is an unchangeable fact. It seems central bankers in London and Frankfurt will look to the Fed to try to provide more stability and consistency for currencies in Europe.”

Sam Cornford, Partner & Head of Trading

Main Headlines

US house prices increased at the highest-rate month on month since May 1999, due to inflationary pressure within the US economy. The National Association of Realtors detailed that the median sale price for houses across the country in May hit a figure of $350,000 for the first time. This figure was nearly 24% higher than in May 2020, the biggest year on year increase for 22 years. The Delta Variant of the coronavirus pandemic could be the dominant strain in the country, posing a significant risk to the United States. This variant already accounts for a third of new cases each day in the United States.

UK exporters have received £12bn in state financial support to keep Britain trading internationally throughout the pandemic and Brexit negotiations. UK government support paid by UK Export Finance, the government’s export credit agency, provided the highest level of support for 30 years. UKEF provided roughly £7bn to businesses disrupted by the pandemic such as British Airways and easyJet, with a mixture of trade guarantees and insurance to encourage private sector lending to UK exporters. Ahead of the EU summit on a multi-billion euro cash injection in Brussels, Amnesty International released a report revealing that the Greek border forces have repeatedly pushed migrants back to Turkey – putting migration back on the agenda of EU leaders.

GBP

The pound in stronger than most majors overnight. The UK tax authority, HMRC, will take a cautious approach to unpaid business taxes to avoid a wave of insolvencies across the UK. Business Secretary, Kwasi Kwarteng, announced that companies struggling with coronavirus debts will not be pursued to pay outstanding taxes. The FCA announced plans to extend climate reporting requirements, to meet investor demand for disclosure of risks that companies face from climate change. It is hoped that this will cover 98% of assets under management in the UK market.

EUR

The euro is weaker than the pound and the dollar in the early morning trade. The European Union opened a formal antitrust probe into Google, after allegations that it abuses its leading role in the advertising-technology sector. The European Commission will look into anticompetitive business practices by Alphabet Incorporated, including the broking of advertisements and sharing of using data with advertisers. In a statement, the European Commission said the formal investigation will examine whether Google has distorted competition by restricting third parties — like advertisers, publishers, or competing online display advertising intermediaries — from accessing user data for advertising purposes on websites and apps, while simultaneously reserving such data for its own use.

USD

The dollar is stronger than the euro and weaker than the pound this morning. The top officials of the Federal Reserve have indicated that there is still a major obstacle to tightening monetary policy, as chairman Jay Powell and his inner circle want to confirm the message from the central bank after almost a week of market disturbances. In a series of interventions, senior Fed officials came under fire this week from some investors, and even legislators, that they were ready to raise interest rates faster than expected in light of the rapidly improving economic outlook. Instead, they stressed that they believe the current inflation surge in the US is temporary, their commitment to full-time work and their caution to withdraw support for the recovery.

Markets

Most Asian stocks rose with U.S. equity futures Wednesday after reassuring comments on inflation and monetary policy from Federal Reserve officials bolstered investor sentiment. Treasury yields trimmed declines. Technology shares helped MSCI Inc.’s Asia-Pacific index climb for a second day, though Japanese equities edged back. European futures fluctuated and U.S. equity contracts advanced after both the S&P 500 and Nasdaq 100 posted gains. Overnight, the Fed reiterated that inflationary pressure will be temporary even after a notable increase in recent months. Gold was at $1,780.57 an ounce, up 0.1%.

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

9:15 a.m.: France June PMIs

9:30 a.m.: Germany June PMIs

9:30 a.m.: ECB’s Guindos speaks

10:00 a.m.: Euro-Area June PMIs

10:30 a.m.: U.K. June PMIs

11:00 a.m.: U.K. sells linkers

11:30 a.m.: Germany sells bonds

1:00 p.m.: Russia sells bonds

2:30 p.m.: Czech rate decision

3:45 p.m.: U.S. June PMIs

4:30 p.m.: EIA crude inventory report

6:00 p.m.: ECB’s Lagarde speaks

6:00 p.m.: Russia May industrial production

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