December 8, 2022

“A sharp fall in US Treasury bond yields weighed heavily on the greenback overnight. However, concerns over the recession and bets for aggressive interest rate hikes by the Fed have diminished the risk appetite and limited the dollar’s losses. Later today, ECB Lagarde’s speech will be closely watched.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US Supreme Court’s conservative majority yesterday appeared ready to limit judicial power to overrule voting policies crafted by state politicians but might not go as far as Republican North Carolina lawmakers want in a case the liberal justices painted as a threat to American democratic norms. The court heard arguments in a case the state lawmakers have used to try to persuade the justices to endorse a contentious legal theory gaining traction in conservative legal circles that would prevent state courts from reviewing the legality of actions by state legislatures regulating federal elections.

UK’s Labour party is aiming to seize ground abandoned by the Conservatives on economic growth with plans for a shake-up of business funding to help fast-growing startups secure billions of pounds in fresh investment. Rachel Reeves, the shadow chancellor, will use a speech to 350 business leaders in Canary Wharf, east London, today to announce the findings of the party’s review into startup funding led by Jim O’Neill, the former Tory Treasury minister and Goldman Sachs economist. She will say that a Labour government would give the British Business Bank greater independence to invest in fast-growing companies, while also learning from a French scheme to unite the power of the state with large private sector investors.

GBP

Sterling is weaker than most major currencies in the early morning trade. More than 3 million low-income UK households cannot afford to heat their homes, according to research, as a “dangerously cold” weather front arrives from the Arctic. The UK Health Security Agency has issued a cold weather alert recommending vulnerable people warm their homes to at least 18C, wear extra layers and eat hot food to protect themselves from plummeting temperatures. Ministers also confirmed that people in more than 300 postcode areas in England and Wales would receive cold weather payments in the coming days. The £25 payments are triggered when the average temperature is 0C or less for seven days in a row.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The enlargement of the passport-free Schengen Area to take in Romania and Bulgaria has been put in serious doubt ahead of a highly expected vote today. Austria and Netherlands continue to have concerns about admitting one or both of the countries. Interior ministers from the European Union are expected to decide on the long-stalled candidacies today. A unanimous endorsement is required to admit new members into Schengen and abolish checks at all internal borders. Austria argues the new influx of asylum seekers through the Western Balkan route demonstrates that Schengen is unable to cope with migration management, even if Romania is not part of that route.

USD

The dollar is well bid against most major currencies this morning. US National Economic Council Director Brian Deese said the US economy is resilient despite Federal Reserve interest rate hikes that aim to curb historic inflation. Deese said low rates of credit card delinquency and mortgage concerns point to resiliency in household balance sheets, while the labour market and the savings rate also indicate steadier growth. What’s more, he pointed to slowing inflation as a positive sign for healthier economic growth. The November labour market report released last Friday showed job growth was better than expected, as nonfarm payrolls increased by 263,000. The unemployment rate was 3.7%.

Markets

European markets were slightly lower this morning as investor nervousness continued over the state of the global economy and inflation. The pan-European Stoxx 600 was down 0.2% by mid-morning, with telecoms shedding 1.2% while oil and gas stocks added 0.8%. US stock futures were down slightly this morning following a fifth straight day of losses for the S&P 500 as Wall Street weighed the likelihood of a downturn. The S&P slipped 0.19% to end the session at 3,933.92. The Dow Jones Industrial Average eked out a gain of 1.58 points, roughly flat, to finish the session at 33,597.92. The Nasdaq Composite fell 0.51% to end at 10,958.55.

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

9:00 a.m.: Hungary Nov. CPI; Oct. Trade Balance

10:00 a.m.: South Africa 3Q Current Account Balance
12:00 p.m.: Ireland Nov. CPI
12:00 p.m.: South Africa Oct. Manufacturing Production
1:00 p.m.: Ukraine Rate Decision
1:00 p.m.: ECB’s Lagarde speaks
1:15 p.m.: ECB’s de Cos speaks
2:00 p.m.: Nobel laureates Bernanke, Diamond, Dybvig speak
2:15 p.m.: Riksbank’s Floden speaks
3:00 p.m.: Polish central bank’s Glapinski speaks
3:30 p.m.: SNB’s Maechler speaks
4:15 p.m.: Riksbank’s Ingves speaks
5:00 p.m.: ECB’s Villeroy speaks

Corporate Events

Earnings include Lukoil, Broadcom, Costco, Lululemon, Ciena, DocuSign

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