November 12, 2021

“A broad-based rise in US consumer prices, demonstrated by CPI data released on Wednesday contributed to the dollar’s best week in almost five months. The fastest US inflation in decades saw the dollar outpace the euro and sterling, further bolstered by anticipation of a hike in interest rates by the Federal Reserve.”

Sam Cornford, Partner and Head of Trading

Main Headlines

The fastest pace of inflation in three decades is posing a new challenge for President Biden as he seeks to enact another pillar of his economic agenda while also easing Americans’ concerns about rising consumer prices. The inflation has opened the door for Republican criticism of Biden’s $2 trillion social-spending and climate plan Build Back Better Bill, which will allegedly raise prices further. House Democrats are aiming to wrap up the bill next week and send it to the Senate. The Labor Department said Wednesday that the consumer-price index increased in October by 6.2% from a year ago, the fifth straight month of inflation above 5%, with prices jumping on goods from cars and gasoline to groceries and furniture.

The Office for National Statistics announced on Thursday that the U.K. economy grew by 0.6 percent in September but remains 0.6 percent below its pre-pandemic level of February 2020. In addition, the ONS revised GDP estimates for the previous two months down, from a 0.1 percent fall to a 0.2 percent in July, and from 0.4 percent growth to 0.2 percent growth in August. The data shows that output in all sectors of the economy remains below pre-crisis levels. The ONS also confirmed the economy lost pace on a quarterly basis. The level of quarterly GDP is now 2.1 percent below where it was before the pandemic in the final quarter of 2019.

GBP

Sterling is well-bid against most majors in overnight trade. Britain’s leadership in fighting climate change at COP26 is in question as it confirmed it won’t join a New Zealand-led green trade pact that would commit it to end billions in subsidies for the fossil fuel sector. British ministers and officials say the U.K. won’t join the Agreement on Climate Change, Trade and Sustainability (ACCTS) because it wants to keep the subsidies and certain tariffs on environmentally friendly green goods and services the deal would eliminate. Brexit Minister Lord Frost will meet his EU counterpart Maroš Šefčovič later. They will assess whether any progress has been made in negotiations on the Northern Ireland Protocol.

EUR

The euro is lower against most majors overnight. The European Commission lifted its growth projection for the bloc on Thursday to 5.0% up from 4.3%, while warning of mounting headwinds as the fourth wave of the coronavirus pandemic hits the continent and global supply bottlenecks add to economic woes. Economy Commissioner, Paolo Gentiloni commented that the raised growth projection reflects that the EU economy is moving from a recovery stage to an expansion stage. Germany’s public health body reported 50,196 new cases and 235 deaths within the past 24 hours. Numbers in Germany have surged over recent days. The previous record was reported on Wednesday with new cases hitting 39,676. The German parliament will discuss later today a set of rules to help contain the spread of the virus.

USD

The dollar is lower against sterling and higher against the euro in early morning trade. President Biden and Chinese President Xi Jinping plan to hold a virtual summit on Monday, as the two leading world economies pledge to work together on climate change, but differences remain over Taiwan. The leaders have spoken twice since Mr. Biden took office in January, the last time in September, though the summit is expected to resemble a more formal bilateral meeting with staff involvement. U.S. officials said climate, trade and nuclear non-proliferation—all areas the U.S. wants to work on with Beijing—as well as Taiwan and cybersecurity are among the issues that could be discussed.

Markets

Asian stocks rose and U.S. equity futures were steady Friday, bringing some relief for shares from the inflation fears still roiling Treasuries. MSCI Inc.’s Asia-Pacific gauge posted its biggest rise this week, helped by a rally in Japan and a jump in China’s technology stocks. The view that the worst of Beijing’s regulatory blitz has passed supported sentiment. S&P 500, Nasdaq 100 and European contracts were little changed after U.S. shares edged up. Five-year notes led a continued selloff in Treasuries after a trading holiday. The spread between 5-year and 30-year yields shrank, at one point to the narrowest since March 2020. A rout hit bonds Wednesday after the fastest U.S. inflation in three decades stoked bets on faster monetary tightening. Oil, gold and Bitcoin slipped.

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

8:00 a.m.: Turkey Sept. industrial production

8:00 a.m.: Romania Sept. industrial output

8:30 a.m.: Switzerland Oct. producer and import prices

9:00 a.m.: Spain Oct. CPI

9:00 a.m.: Slovakia Oct. CPI

9:30 a.m.: Norges Bank’s Bache speaks

10:00 a.m.: Iceland Oct. international reserves

10:00 a.m.: Poland 3Q GDP

11:00 a.m.: Euro-area Sept. industrial production

11:50 a.m.: Hungary’s Varga speaks

12:00 p.m.: Portgual 3Q labor cost index

12:15 p.m.: Riksbank’s Ohlsson speaks on financial stability

2:50 p.m.: ECB’s Lane speaks on EU fiscal governance

3:00 p.m.: BOE’s Haskel speaks at IARIW-ESCoE conference

Iceland, Netherlands, Portugal, Croatia, Latvia Moody’s sovereign debt rating

COP26 scheduled to end

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