December 20, 2021

“Following Federal Reserve officials indicating interest rates could rise as early as March on Friday, the dollar hovered near its highest point in 17 months today. Meanwhile, after increased Covid measures across Europe, and the UK health secretary’s failure to rule out the UK wouldn’t do the same, the euro and sterling sank.”

Sam Cornford, Partner and Head of Trading

Main Headlines

Yesterday, Senator Joe Manchin has said he will vote against the Democrat’s $2 trillion ‘Build Back Better’ Act, in a move which throws the bill into jeopardy. In an interview with Fox News, Manchin cited many concerns as the reasoning behind his decision, namely the bill’s effect on debt and inflation, as well as the Democrat’s desire to fund several programs on a temporary basis. The bill seeks to raise taxes on corporations and very high-income individuals to offer lower prescription-drug costs and subsidize childcare costs among other things. The White House press secretary stated that Manchin’s comments were not in line with those he had talked about with Biden and that Manchin had outlined proposals for a deal which cost $1.75 trillion.

Following David Frost’s resignation from Brexit minister on Saturday evening, it was announced yesterday that foreign secretary Liz Truss, has been awarded the role of overseeing the UK’s trade talks with the EU. The former Brexit minister stated issues with the government’s ‘direction of travel’ as the reasoning behind his resignation, citing Coronavirus measures and tax prices. Downing Street has stated that the Foreign, Commonwealth and Development Secretary will be taking over all Frost’s posts immediately, including deciding how to approach the Northern Ireland protocol. It is believed that the prime minister is no longer wanting to remove the ECJ from its role in administering the Northern Ireland protocol, while Frost was a harsh critic of the ECJ.

GBP

Sterling is weaker than most major currencies in early morning trade. Today, a report published by the Nuffield Trust, outlined that the UK government has failed to resolve key post Brexit health issues. The report suggested that ministers were negotiating ‘brinkmanship’ and had been delaying decisions. It lamented that in the year following Britain’s exit from the bloc, issues such as staffing pressures caused by immigration restraints had not been adequately addressed.  Meanwhile, as the Omicron variant continues to rapidly spread across the UK, the health secretary failed to rule out that additional Covid-19 measures could be introduced in England before Christmas. In an interview with Andrew Marr, Javid said there were ‘no guarantees’ while dealing with a pandemic.

EUR

The euro is well big against most major currencies overnight. Maros Sefcovic has called for a reset in the EU-UK relations in order to tackle key issues. The EU’s Brexit negotiator stated that by resolving the dispute over Northern Ireland, they could ‘re-establish political trust.’ He followed this by highlighting this would allow them to tackle issues in climate change and European security.  Elsewhere, Europe continues to amp up its Covid measures. The Netherlands has become the first EU country to re enter a nationwide lockdown as new restrictions began yesterday morning and are set to continue until at least mid-January. Meanwhile, Germany has announced it will ban al travellers entering from the UK from midnight on Sunday, excluding nationals and residents, to prevent the spread of Omicron.

USD

The dollar is weaker against the euro but higher than sterling in early morning trade. Following Manchin’s decision not to support the Build Back Better bill, Biden’s climate plans have been put into question. The legislation was seen as crucial to the US achieving their emissions targets of cutting emissions by 52% below 2005 levels. While independent analysts are highlighting Biden could still meet the target, doing so would require more ambitious actions. Elsewhere, the Chief Medical Advisor said Omicron could place a strain on hospitals over the next few weeks. However, he also stated that wider lockdown measures looked unlikely in an address on ABC news.

Markets

Investor sentiment sagged Monday amid turmoil for President Joe Biden’s economic agenda and rising global omicron infections, spurring selloffs in stocks, equity futures and oil while bolstering sovereign bonds. Senator Joe Manchin blindsided the White House on Sunday by rejecting Biden’s roughly $2 trillion tax-and-spending package. Goldman Sachs Group Inc. economists reduced their U.S. economic growth forecasts in the wake of the senator’s move. In China, banks lowered the one-year loan prime rate, a key benchmark of borrowing costs, for the first time in 20 months and Fresh lockdowns in parts of Europe to stem the rapid spread of omicron are also unsettling investors. Treasuries led global bonds gains and the dollar held a jump from Friday. S&P 500, Nasdaq 100 and European futures slid at least 1%, and MSCI Inc.’s gauge of Asia-Pacific equities was set for its worst drop since March. Commodity-linked currencies struggled, while the yen strengthened. Crude oil slid on worries that mobility curbs to tackle the strain will hurt demand.

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

10:00 a.m.: ECB Oct. current account

10:00 a.m.: Poland Nov. PPI

10:30 a.m.: Current account Oct. balance: Slovakia, Italy, Greece, Portugal

11:00 a.m.: Finnish government economic forecasts

12:00 p.m.: U.K. Dec. CBI trends

2:30 p.m.: Ukraine 3Q GDP

Bloomberg Dec. economic survey: Georgia, Armenia, Belarus, Moldova

January WTI crude futures expire

EU Environment Council meets in Brussels

German Chancellor Olaf Scholz visits Rome

Corporate Events

Earnings include Nike, Micron Technology, Carnival, Sino Biopharmaceutical, Acciona Energia

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