October 15, 2021

“The U.S. dollar headed for its first weekly decline versus major peers for the first time in 5 weeks, falling back from a one-year high as traders turned their attention to when the US Federal Reserve will start raising interest rates.”

Tim Hallinan, Trading Director

Main Headlines

US supply bottlenecks and labour shortages felt across the US economy are driving up the cost of shale oil production, a trend that is helping to underpin the price of oil with Texas crude above $80 a barrel. Expenses including steel, wages and contracts to hire drilling rigs are on the increase. Cost inflation in the oil patch is likely to run at 10 to 15 per cent next year, much faster than the broader US price indices. This could have consequences for global oil markets. Moody’s, the debt rating agency, recently raised its expected oil price range for the next two years by $5 a barrel, to $50 to $70 a barrel. Oil has been trading at seven-year highs, with West Texas Intermediate crude above $80 a barrel, as petroleum markets spring back from the lockdowns at the onset of the coronavirus pandemic in early 2020.

Leading EU member states are pressing Brussels to draw up tough retaliatory measures should the UK carry out its threat to suspend trading arrangements for Northern Ireland enshrined in the Brexit deal. Representatives of five member states on Monday met European Commission vice-president Maros Sefcovic, the EU Brexit negotiator, to demand he come up with contingency plans for a possible trade war. France, Germany and the Netherlands, a traditional UK ally, were the most vocal, supported by Italy and Spain. Among the options being discussed in EU capitals are curbing UK access to the bloc’s energy supplies, imposing tariffs on British exports, or in extreme circumstances terminating the trade agreement between the two sides.

GBP

Sterling is strong against most majors in overnight trade. New rules allowing travellers returning to England to take lateral flow tests instead of more expensive PCR tests will come into force on 24 October. The government says the changes will take effect in time for families returning from half term breaks. Fully vaccinated passengers will be told to upload photos of their Covid-19 tests for verification. Transport Secretary Grant Shapps said it would make travel easier and simpler. Scotland’s rail network will be hit by strikes during the UN climate summit in Glasgow, a union has confirmed. The RMT said members who work for ScotRail, and Caledonian Sleeper will stage industrial action during COP26 in an ongoing row over pay. ScotRail staff will strike from 00:01 on Monday 1 November until 23:59 on Friday 12th November.

EUR

The euro is higher against the dollar and lower against sterling overnight. French politicians have embarked on a spree of EU-bashing — boosted by a Polish court ruling that challenged the legal bedrock of the European Union. The strong criticism of the EU and calls for France to assert its national sovereignty. The rhetoric adds to the major concerns facing EU leaders over the Polish ruling, which was encouraged and embraced by Poland’s nationalist government. The European Commission has made clear that EU law has primacy over national law, including national constitutions. Valérie Pécresse, the leader of the Paris region who is campaigning to be the presidential candidate of the conservative Les Républicains party in next April’s election, became the latest French politician to join the fray.

USD

The dollar is lower against most majors in early morning trade. The chairman of the House inquiry into the Jan. 6 attack on the Capitol said the committee would move next week to recommend that Stephen K. Bannon, a former top adviser to President Donald J. Trump, face criminal contempt charges for refusing to cooperate with its investigation. President Biden on Thursday announced the donation of 17 million Johnson & Johnson Covid-19 vaccines to a group of African countries during a meeting with President Uhuru Kenyatta of Kenya, which is contending with the pandemic and an unfolding humanitarian disaster in neighbouring Ethiopia. The FDA panel recommends a booster shot for over 65s and high-risk recipients for Moderna vaccine recipients.

Markets

Stocks pushed higher along with U.S. and European equity futures Friday, bolstered by robust corporate earnings and China’s move to loosen restrictions on home loans at some of its largest banks. Japanese equities outperformed amid a dip in the yen, while both Hong Kong and China gained, following the S&P 500’s best day since March. Results from major Wall Street banks beat estimates, U.S. producer prices advanced at the slowest pace this year and initial jobless claims fell, boosting sentiment. China is easing mortgage curbs as concerns grow about contagion from the China Evergrande Group debt crisis. The nation’s central bank added enough medium-term funds to keep financial-system liquidity at existing levels. The U.S. 10-year Treasury yield edged up and the dollar was steady. Bitcoin extended a climb on expectations the Securities and Exchange Commission will allow the first U.S. Bitcoin futures exchange-traded fund.

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

8:00 a.m.: EU Sept. new car registrations

8:45 a.m.: France Sept. CPI

10:00 a.m.: Poland Sept. CPI

10:00 a.m.: Italy Sept. CPI

10:00 a.m.: Turkey budget balance

11:00 a.m.: Italy Aug. trade balance

12:00 p.m.: Ireland Aug. trade balance

4:00 p.m.: Riksbank’s Jansson in round-table discussion

4:00 p.m.: University of Michigan sentiment index

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

Moody’s to rate U.K. sovereign debt

Corporate Events

Earnings include Goldman, Charles Schwab, Prologis, PNC Financial, Sensient Technologies

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