August 31, 2021

“The dollar hovered near a top-week low against a basket of major currencies after Fed Chair Jerome Powell offered no indication on when the central bank will cut its asset purchase stimulus program. The euro is at its highest level since August 6^th after inflation gained pace across the currency bloc.”

Tim Hallinan, Trading Director

Main Headlines

The Federal Reserve faces a challenge to spell out employment goals for the US economy, with the Covid-19 pandemic complicating how it determines whether the economy is at ‘maximum employment’ and when to raise interest rates. Maximum employment will heavily influence the Fed’s thinking around how much longer interest rates remain near zero. Favourable hiring conditions, with more new jobs available will help push the US economy towards a position where the Fed may raise interest rates. Fed officials will read closely a Labor Department report on workforce growth, unemployment and hiring to consider whether to raise interest rates.

The UK has opened applications for a £450mn innovation fund aimed at accelerating efforts to decarbonise energy networks, as the country gears up to host the UN’s COP26. Ofgem and Innovate UK are pushing for companies to submit clean energy proposals for heating, transport, digitalisation and system integration. The funding will come from network charges on consumer bills and could be increased if enough viable proposals are submitted to Ofgem to contribute to the UK’s targets to cut emissions to net zero by 2050.

GBP

Sterling is higher against the dollar and lower against euro in early morning trade. Boris Johnson has reiterated that the international community will “push as one voice” for the safe passage of Afghans who to exit the country. His comments followed a UN Security Council resolution drafted on Monday by France and Britain which pushed to prevent Afghanistan regaining its status as a base for terrorism. Nicola Sturgeon, Scotland’s First Minister, appointed the first Green party ministers to a UK government. The Green co-leaders will hold potentially pivotal roles in cutting carbon emissions, ahead of the COP26 summit hosted in Glasgow in November.

EUR

The euro is well-bid against most majors in early morning trade. Armin Laschet has sought to boost his election campaign to become Chancellor of Germany by laying out a more detailed climate proposal, promising to turn Germany into a “climate-neutral industrial nation” by 2045. ECB Governing Council member and Bank of Finland Governor Olli Rehn warned that the bank “should avoid the mistakes that were done in 2011 with early rate raises” amid transitory inflation across the bloc. His comments have fuelled speculation that the ECB will not follow the Federal Reserve’s tapering of it’s stimulus program in the short-term.

USD

The dollar is lower against most majors overnight. The US presence in Afghanistan came to an end yesterday, as remaining troops were withdrawn from Kabul International Airport, the scene of a chaotic airlift which evacuated 120,000 people in recent weeks. Thousands of Afghans were left behind in the country amid the scramble to leave. The Taliban took the airport and celebrated a victory quickly after US troops had left. Qatar has urged the Taliban to allow a foreign security presence at Kabul International Airport in recent hours. President Biden is due to address the US public today following the withdrawal, as the first president to end the US’ role successfully but controversially in Afghanistan.

Markets

Asian stocks climbed along with U.S. and European equity futures Tuesday after another record Wall Street close, weathering signs of weaker economic activity in China. MSCI Inc.’s Asia-Pacific equity index hit a more than two-week high. Chinese shares lagged the broader benchmark, in part on data signalling that an outbreak of the delta virus variant led to a contraction in the service sector. S&P 500 and Nasdaq 100 futures rose after the S&P 500 hit an all-time high. Treasuries held gains made since Federal Reserve Chair Jerome Powell’s measured comments on the monetary policy outlook. Oil was steady, with traders assessing the prospect of additional OPEC+ production. Aluminium and nickel advanced as Goldman Sachs Group Inc. raised target prices. In cryptocurrencies, Bitcoin fell to about $47,000.

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

8:45 a.m.: France July PPI, Aug. CPI

9:00 a.m.: Turkey July trade balance

9:55 a.m.: Germany Aug. unemployment

10:00 a.m.: Norges Bank Sept. daily FX purchases

10:00 a.m.: Italy 2Q GDP

10:30 a.m.: Portugal Aug. CPI

10:30 a.m.: U.K. July mortgage approvals, money supply, consumer credit

11:00 a.m.: Italy Aug. CPI

11:00 a.m.: Euro-area Aug. CPI

11:00 a.m.: ECB’s Holzmann, Knot, Denmark’s Callesen speak

11:15 a.m.: Switzerland to sell bills

11:30 a.m.: Belgium to sell bills

2:00 p.m.: Riksbank’s Floden gives speech on monetary policy

Corporate Events

Earnings include Ems-Chemie, Bunzl, VGP, NetEase, CrowdStrike, Sino Biopharmaceutical, Evergrande Property, China Evergrande

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