October 13, 2021

“The U.S. dollar eased back from a one-year high versus major currencies this morning ahead of US consumer price data, which could provide additional clues on when the Federal Reserve will taper stimulus and raise interest rates.”

Tim Hallinan, Trading Director

Main Headlines

The House of Representatives has approved a debt ceiling measure in the lower house, designed as a short-term increase in America’s borrowing limit, averting a potential debt default looming as early as next week. The vote in the Democratic-controlled lower chamber now paves the way for President Biden to quickly sign the measure into law, following approval of the measure in the Senate last week. This piece of stop gap legislation will avert an immediate crisis over the debt limit, creating a new deadline in December to stave off a potential default. Eleven republicans helped to advance the legislation in the Senate previously, however, Republican party leader Mitch McConnell has warned the same will not happen ahead of the December deadline.

The UK economy will lag behind other G7 nations, according to an IMF forecast stating that coronavirus crisis is set to bring more long-lasting damage to the UK economy, which will still be 3% smaller in 2024 whilst other countries in the bloc will experience a greater economic bounce back. Ahead of the Autumn Budget this month, the IMF predicts that Chancellor Rishi Sunak will not be able to point to a sustained fall in public debt by the middle of the decade. The Chancellor may have to redirect incomes from raising national insurance, away from health and social care towards paying for the legacy of the pandemic and propping up the UK’s economic recovery to match fellow G7 nations.

GBP

Sterling is higher against the dollar and lower against the euro in overnight trade. The EU will offer to remove more than half of the checks on goods arriving in Northern Ireland from the British mainland, despite protests from France. The U.K.’s David Frost detailed that the EU’s decision not to go even further and rewrite the NI Protocol will be “an historic misjudgement” and the “fractious” relations between the two sides will not reach an equilibrium without compromise from Brussels. The UK is edging towards an economic recovery in August due to an uptick in spending in the arts, entertainment and food sectors across the country experienced a rebound on the previous month. GDP grew 0.4% month on month according to ONS statistics.

EUR

The euro is well-bid against most majors overnight. An announcement is expected today that Vladimir Putin wants to press the EU to tilt away from spot-pricing for natural gas toward long-term contracts favoured by state-run Gazprom. The country is also seeking rapid certification of the controversial Nord Stream 2 pipeline to Germany to boost gas deliveries. In Belgium, plans to replace gas-fired power plants with nuclear reactors by 2025 has caused a fracture within the ruling coalition, as the Greens are pitted against the Liberals on the matter within a seven-party coalition. Six months before the presidential election, French President Emmanuel Macron will unveil “France 2030”, a €30 billion investment plan aimed at reindustrializing the country after the coronavirus crisis, focused on investment in space, biotechnology, culture and nuclear power.

USD

The dollar is lower against most majors in early morning trade. Democratic lawmakers announced that the US will reopen its land borders to Mexico and Canada to vaccinated travellers in November, ending restrictions put in place at the start of the pandemic which have placed strain on bilateral relations. An interpreter who assisted President Biden in Afghanistan to escape a blizzard and possible ambush has been granted a Special Immigration Visa to come to the United States. The Pentagon’s Chief Software Officer resigned due to frustrations at the slow place of technological transformation in the US military and because in his view the country “has already lost on AI to China”. US Covid-19 cases have dropped 22% in the past two weeks and hospitalisations are down by 20%.

Markets

Asian stocks were mixed Wednesday as traders weighed the impact of elevated inflation on the economic recovery and looked ahead to earnings reports. A gauge of the dollar ticked lower. Shares in Japan posted modest losses, while South Korea outperformed amid a strong jobs report. S&P 500 and Nasdaq 100 futures dipped as investors wait to see whether the corporate profit outlook will boost sentiment. Apple Inc. slipped on a likely cut in iPhone 13 production targets for 2021 due to chip shortages, putting the focus on pandemic-related supply-chain snarls. European futures fluctuated. The U.S. 10-year Treasury yield held below 1.60%. Markets are bracing for a U.S. CPI report that is expected to show elevated inflation. A rally in oil paused but crude remained around $80 a barrel amid a global energy crunch. Chinese thermal coal futures hit another record high.

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

8:00 a.m.: U.K. Aug. industrial, manufacturing production, trade balance

8:00 a.m.: Germany Sept. CPI, EU harmonized CPI

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

12:00 p.m.: Portugal Sept. CPI, EU harmonized CPI

2:30 p.m.: U.S. CPI

3:30 p.m.: BOE’s Cunliffe speaks

6:00 p.m.: Russia weekly CPI

8:00 p.m.: Fed minutes

9:00 p.m.: G20 finance ministers final presser

9:15 p.m.: Italy’s Franco, Visco hold G20 press conference

Corporate Events

Earnings include JPMorgan, BlackRock, Delta Air, First Republic Bank

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