July 9, 2021

“Concerns over the Covid-19 delta variant around the world have continue to uphold the dollar’s safe-haven appeal. The dollar will likely continue to be stronger versus euro this year, since the ECB’s intended date of tightening monetary policy is clearly behind the Fed’s. That is not the case with the central banks of Norway, Canada and New Zealand, whose currencies stand to benefit from decisive tapering.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Hospitalizations related to Covid-19 are rising in the U.S. after a long decline, according to the Federal Reserve, providing evidence of the human toll the Delta virus variant is taking on the US public. Just under 2,000 new patients were admitted to hospitals each day over the week ending July 5, a 6.8% increase over admissions during the previous week. New cases are up too, to a seven-day daily average of 13,859 on July 6, about an 11% increase over the previous seven-day average.

The UK Treasury and the European Union are clashing over post-Brexit arrears due to be paid as the UK’s withdrawal process from the bloc continues. Rishi Sunak’s department has challenged the EU’s calculation that Britain would be obliged to pay £40.8bn as part of ongoing obligations and commitments from when the UK was one of the 28 member states. The UK Treasury insists that the Brexit divorce settlement is closer to the £35bn-£39bn which it had previously estimated and planned for as of December 2020 by the Office for Budget Responsibility and a series of research papers published in the House of Commons.

GBP

Sterling is lower against the dollar and higher against the euro overnight. Workplaces in the UK are set to be given more freedom by the government over Covid-19 restrictions, with greater discretion over mask wearing, social distancing and “working from home” guidance. The government will condense 14 separate documents giving guidance, published since March 2020 to simplify guidance for UK companies. The UK will “not turn away” from Afghanistan according to Boris Johnson, despite the vast majority of troops having left whilst the Taliban continues to make territorial gains across the country.

EUR

The euro is lower against most majors in the early morning trade. The G20 finance ministers are set to meet in Venice, where they are widely expected to give the political seal of approval to a global tax deal ratified by 130 OECD countries. This deal aims to set a global minimum corporation tax, which has been negotiated at the G7 previously as well as introduce a controversial digital services tax. Elsewhere in Europe, Bulgaria and Moldova will hold parliamentary elections on Sunday, whilst a bloc of legal scholars has set out a principled case for suspending EU payments to Hungary over anti-LGBT laws.

USD

The dollar is well bid against most majors overnight. US Treasury Secretary Janet Yellen is due to lobby EU and G20 finance ministers over the introduction of a digital services tax to be debated in Venice. Yellen will travel to Brussels for a meeting of the Eurogroup where she will urge the EU to ditch or delay the introduction of a digital services tax that targets Big Tech companies. The Biden Administration is concerned that this action in the EU could make it harder to get a bill full of corporate tax amendments through Congress. Biden wishes to reduce reliance on China for rare earth materials, aiming to build US capacity to mine them, but faces a “green dilemma” amid backlash from environmentalists.

Markets

Asian shares followed U.S. equities lower Friday on anxiety that the spread of Covid-19 variants could hamper the global economic recovery. Treasury yields ticked up. MSCI Inc.’s Asia-Pacific stock gauge slid to the lowest since mid-May but came off the day’s low. Economically sensitive sectors such as industrials led the index lower, with equities from Japan to Australia retreating. A Hong Kong gauge of Chinese stocks rebounded after flirting with a bear market amid Beijing’s tech sector clampdown. U.S. futures fluctuated after the S&P 500 and Nasdaq 100 dipped from records. Treasuries slipped, though the 10-year yield remains on course for one of its biggest weekly slides since June last year. Oil headed for its largest weekly loss since April. Bitcoin is again in the lower part of a trading range.

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

8:00 a.m.: U.K. May GDP, industrial production,

9:00 a.m.: Turkey May current account

9:00 a.m.: ECB’s Rehn speaks

10:00 a.m.: Italy May industrial production

11:00 a.m.: Italy sells bills

12:00 p.m.: U.K. sells bills

12:00 p.m.: BOE’s Bailey speaks on panel with ECB’s Lagarde

1:00 p.m.: U.K. May trade

1:30 p.m.: ECB minutes

5:00 p.m.: ECB’s de Cos speaks

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

Russia sovereign debt rated by Fitch

G-20 finance ministers and central bankers meet in Venice

Corporate Events

Earnings include Floor & Decor, Vericel, Greenbrier Companies, AZZ

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