December 8, 2021

“The dollar index highlighted the greenback was little changed, while a jobs report due today should provide evidence on the health of the US labour market and potentially firm bets on earlier Fed tightening. This in turn will boost the dollar. Elsewhere, the euro made gains after touching its lowest a couple of weeks ago when the Omicron variant first emerged in the bloc.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The House of Representatives made a deal yesterday that enables the federal government’s borrowing limit to be raised and avert a crisis over the debt ceiling. The measure they implemented means that the Senate could pass the bill through a majority vote and forego the ‘filibuster’ threshold. The measure also means the support of at least 10 Republican senators is necessary to become law. The Treasury secretary has warned the US government risks default and severely impacting economic recovery if lawmakers are unable to make an agreement. The first Senate vote is expected tomorrow and it will indicate how easy it will be for the Democrat’s to raise the borrowing limit.

Yesterday, TheCityUK lobby group announced the EU was no longer Britain’s biggest export market, having been replaced by the US following Brexit. Financial services exports to the EU fell 6.6% to £24.7bn in 2020, whereas exports to non-EU countries rose 4.1% to £57.7bn. In this, exports to the US increased 5.3% which meant that the US accounted for 34.2% of sector exports in 2020. In comparison export to the EU fell to 30%. This comes after the UK and the EU did not strike a deal for financial services following Brexit in 2020. The total value of UK financial services exports totalled $82.4bn in 2020, and were generally more resilient than other sectors in the face of Covid.

GBP

Sterling is higher against the dollar and weaker against the euro overnight. Officials are racing to draw up plans and restrictions to prevent the spread of the Omicron variant. Yesterday, the prime minister informed his cabinet that Omicron appears to be more transmissible than the Delta strain. A spokesman for Boris Johnson said that the government’s ‘Plan B’ which includes vaccine passports and a work from home mandate could be deployed. However this news comes alongside a leaked video, in which Boris Johnson’s advisers were caught joking about a Downing Street Christmas party.  The lobby group London First is set to be renamed amid fears it clashes with the government’s ‘levelling up’ agenda. The company thought the name looked ‘inappropriate’ when there is talk about helping other UK cities.

EUR

The euro is well bid against most major currencies overnight. The Biden administration is encouraging Germany to prevent Russia’s Nord Stream 2 gas pipeline as part of a package of sanctions that would be imposed if Russia invades Ukraine. The US wants Berlin and Brussels to prohibit the pipeline from becoming operational and is part of a sanctions package the US is proposing to quell another conflict in the region. Meanwhile, yesterday Germany’s new finance minister has signalled a new openness towards EU fiscal rules, as he stated ‘stability’ should be combined with ‘growth and investment.’ He becomes minister at a time when there are calls to reform fiscal rules and a consultation is currently underway on how the arrangements in the Stability and Growth pack can be changed.

USD

The dollar is weaker than most major currencies in early morning trade. Yesterday, the House voted to approve a $778 billion National Defense Authorization Act. The bill is a budget and defense policy bill that authorizes $25 billion more in defense spending than the President requested. It also includes a commission to study US involvement in Afghanistan, after their tumultuous withdrawal in the Summer. Elsewhere, a new Wall Street Journal Poll finds that voters are heading into the midterm election pessimistic about the economy and the President’s leadership. The poll reveals that voters see economic and fiscal issues as better handled by the Republican Party.

Markets

Treasury yields fell slightly after rising across the curve Tuesday, when the two-year yield reached the highest since March 2020 and the 10-year yield moved back toward 1.5%. Crude was steady after surging past $72 a barrel in New York. Stocks and U.S. futures rose along with Asian dollar bonds as optimism about vaccines eased concerns about the omicron variant and China policies helped buffer against fallout from mounting property debt distress. Steps by Chinese authorities to limit the fallout from property market woes lifted some risk assets in Asia even as key debt deadlines at China Evergrande Group and Kaisa Group Holdings Ltd. passed without any sign of payment. Asia dollar bonds and Chinese junk notes rallied the most in a month, extending a rebound this week after China’s central bank cut the reserve requirement ratio for most banks on Monday. MSCI Inc.’s Asia Pacific benchmark advanced for a second day. Pfizer Inc.’s shot has been shown to provide a partial shield against the omicron variant in a South African study. European futures fluctuated. The onshore yuan strengthened to its strongest level since 2018. The S&P 500 and the Nasdaq 100 chalked their biggest gains since March and gauges of volatility retreated. Risk assets are recovering after a bout of turbulence sparked by the emergence of the new virus variant.

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

(All times CET)

8:00 a.m.: Finland Oct. trade balance

9:15 a.m.: ECB’s Lagarde speaks at ESRB conference

9:25 a.m.: ECB’s Guindos speaks at banking and fintech event

12:30 p.m.: ECB’s Guindos speaks at ESRB conference

2:10 p.m.: ECB’s Schnabel speaks at ESRB conference

5:00 p.m.: Russia Nov. CPI

France Oct. business industry sentiment indicator

Bloomberg’s Sustainable Business Summit: Focus on Finance

Olaf Scholz replaces Angela Merkel as chancellor

Poland base rate announcement

EIA crude inventory report

Corporate Events

Earnings include Eneti, Rent The Runway, UiPath, GameStop, Udemy, Fluence Energy

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