December 17, 2021

“Following the uncertainty caused by the rapid spread of Omicron, paired with the Fed’s announcement of upcoming rate hikes for the following years, the Bank of England and the European Central Bank have adopted more hawkish stances. This has boosted the euro and sterling, whilst the dollar remains under pressure.”

Tim Hallinan, Trading Director

Main Headlines

Democrat’s hopes of passing their $1.75 trillion Build Back Better bill  before Christmas are looking increasingly bleak, as the president admitted yesterday it might take ‘weeks’ to secure the bill’s final passage. This follows delays from Senator Manchin, who holds a pivotal vote in the evenly divided Senate and is concerned about the bill raising inflation further. However, the Biden Administration suffered a further setback yesterday after the Senator for West Virginia found that Democrats’ plan to provide temporary protections for immigrants living in the US could not be included in the legislation. This is due to the package having to comply with rules associated with reconciliation.

Yesterday, the Bank of England announced it was raising key interest rates from 0.1 percent to 0.25 percent, citing that the risk of long term inflation demanded precautionary measures in the wake of the rapid spread of the Omicron variant. This is the first time in more than the three years that the Fed has increased the rate and followed data earlier in the week that highlighted prices are climbing at the fastest rate in ten years.  Inflation was inching towards six percent, as Andrew Bailey addressed that ‘modest’ rises in interest rates would be needed in the months ahead to prevent further surges in inflation and bring it down to the Bank of England’s 2 percent target.

GBP

Sterling is weaker than most major currencies in early morning trade. UK daily coronavirus cases hit a record high for the second day in a row yesterday, after more than 88,000 people tested positive. England’s Chief Medical Officer has warned that hospital admissions due to the Omicron variant could surpass peaks from earlier waves of the pandemic. Elsewhere, the UK Government are attempting to de-escalate tensions with Brussels, as it was reported they are expected to let go of their demand to remove the European Court of Justice as the referee of rules in Northern Ireland. It is expected that practical questions surrounding the flow of goods between the regions will take precedence over governance issues.

EUR

The euro is weaker against the dollar and higher against sterling overnight. Soaring gas prices in Europe has left EU leaders demanding that Brussels intervene to help prevent record price rises of carbon. Leaders are lamenting that potential market manipulation was potentially exacerbating Europe’s winter gas prices and increasing energy costs. Under the bloc’s emissions system, the carbon price surged to more than €90 per ton of carbon dioxide. Elsewhere, the EU are set to work with allies to implement potential sanctions against Russia if they were to invade Ukraine. Following increased pressure from the US to support financial threats, leaders agreed in a closed-door meeting to develop options for sanctions.

USD

The dollar is well bid against most major currencies overnight. In the Purdue Pharma case, a federal judge overturned their $4.5bn bankruptcy settlement, stating that a provision which protected the Sackler family from civil lawsuits in regards to the opioid epidemic was invalid under the bankruptcy code. The Sackler family has agreed as part of the settlement to contribute $4.5bn from their old fortune to fund trusts that contribute to campaigns and pay victims of the Opioid crisis. Meanwhile, the US has accused China of developing ‘brain control’ weapons, after the US commerce department on Thursday proscribed  China’s Academy of Military Medical Sciences and eleven affiliated institutes.’

Markets

While economic risks from the omicron virus variant helped to sustain demand for Treasuries, stocks fell Friday amid a drop in technology shares as tightening monetary policy buffets sentiment. The Federal Reserve’s pivot toward reducing outsized stimulus has sapped investor ardor for the more richly valued tech plays that dominate the U.S. gauge. U.S. and European equity futures were in the red after the Nasdaq 100 sank the most since September. MSCI Inc.’s Asia-Pacific index was down for the fifth session in six, with Chinese tech stocks sliding more than 2%. The 10-year Treasury yield held a decline from U.S. hours. Continued demand for Treasuries potentially reflects worries that the fast-spreading omicron strain will spark curbs that dim the economic outlook. Oil retreated for the first time in three days and Bitcoin fell below $48,000.

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

8:00 a.m.: Euro-area Nov. new car registrations

8:00 a.m.: U.K. Nov. retail sales

8:30 a.m.: Bundesbank semi-annual economic forecasts

9:00 a.m.: Spain 3Q labor costs

10:00 a.m.: Germany Dec. IFO business climate

10:00 a.m.: ECB’s Rehn speaks at Bank of Finland conference

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

11:30 a.m.: Russia key rate

7:00 p.m.: Baker Hughes U.S. rig count

CFTC traders’ data

Bloomberg December economic survey: Russia, Poland, Turkey

Sovereign debt ratings: Slovakia (Moody’s), Lithuania (Fitch), Luxembourg (Moody’s)

Corporate Events

Earnings include Surgutneftegas PJSC, Darden Restaurants, CapitaLand Investment, PB Fintech, F&F Co., Sanderson Farms

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