September 14, 2021

“The dollar hasn’t changed significantly against other major currencies as investors are looking to US inflation data later in the session for clues on the timing of policy tightening by the Fed. To the slight worry of investors, core CPI, an index which strips out volatile energy and food prices, is still seen above 4%, indicating that inflation is at a very abnormal level.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Democrats in the House of Representatives want to scale back President Biden’s proposed tax increases on corporate income and capital gains, as part of $2.9tn in tax rises to pay for the US president’s expansion of the social safety net. Under the plan, the US corporate tax rate would rise from its current 21% to 26.5% — short of the 28% level proposed by Biden this year. House Democrats are also looking to raise the tax paid by investors on capital gains to 25% from the current rate of 20% — significantly lower than Joe Biden’s planned rate of 39.6%, his target for taxes on ordinary income for wealthy Americans.

Boris Johnson’s plan to build a tunnel linking Scotland and Northern Ireland — estimated to cost at least £15bn — has been described as “dead” by government officials briefed on spending negotiations ahead of Rishi Sunak’s Budget next month. The chancellor gave cabinet colleagues until Monday evening to finalise their bids for public spending and has warned them he wants to “put the public finances on a sustainable path in the medium term”. Thérèse Coffey, work and pensions secretary, has recommended that the New Enterprise Allowance, a programme launched a decade ago, to be scrapped as part of her spending submission to the Treasury.

GBP

Sterling is stronger than most majors this morning. Many more households will be forced into “desperate” measures such as rationing their heating this winter, charities have warned, as a global gas supply crunch, low wind output and strong demand continued to push energy prices across Europe higher. In the UK, day-ahead power prices hit £540 per megawatt hour on Monday, the highest level since 2008, according to the consultancy Cornwall Insight. The equivalent gas price reached a new all-time high of £1.51 per therm. UK and continental European energy prices have been hitting a series of fresh peaks in recent months driven by a combination of a global gas shortage, a bounceback in energy demand after coronavirus lockdown restrictions were eased and some of the poorest conditions for wind generation in the North Sea for more than two decades.

EUR

The euro is well bid against the dollar but weaker than the pound in the early morning trade. Europe’s soaring electricity and gas prices are putting the heat on EU governments, with Spain announcing temporary tax cuts to cushion the blow to consumers as other countries also seek to minimise the political damage from the rise. In a television interview on Monday night, Pedro Sánchez, Spanish PM, said taxes on electricity would be cut by €1.4bn until the end of this year while €650m taken from energy companies’ “extraordinary profits” would be “redirected to consumers”. The steady rise in Spain’s electricity prices, which have hit record levels on the wholesale market throughout the summer, has become the country’s most burning political issue, putting pressure on Sánchez’s leftwing minority government, which is behind in the polls.

USD

The dollar is lower than most majors overnight. The failure by the US to bring Covid-19 cases under control is scrambling business expectations of a rapid economic revival, forcing companies to reset plans and revise forecasts as they also grapple with a new federal vaccine mandate. Revenues have fallen at a quarter of US small businesses in each of the past three weeks while just 8% saw revenue growth, according to an Economic Innovation Group study. A growing minority now expects a full economic recovery to take more than six months. The country’s largest airlines this week disclosed a slowdown in demand as cases of the highly contagious Delta variant climbed. United Airlines reined in its capacity plans for the key Thanksgiving and Christmas holidays and American Airlines and Delta Air Lines flagged lower than expected revenues for the quarter.

Markets

Most Asian stocks were steady Tuesday while U.S. and European futures climbed ahead of inflation data that could color expectations about the Federal Reserve’s likely timeline for paring stimulus. Crude oil gained. The energy sector was the top performer in MSCI Inc.’s Asia-Pacific index amid the oil rally. Japan’s Nikkei 225 Stock Average was set for its highest close since 1990. Hong Kong and China wavered as traders evaluated the troubles of China Evergrande Group, Beijing’s regulatory curbs and a virus flareup. U.S. equity futures rose after the S&P 500 snapped a five-day drop. Treasury yields and the dollar were steady. The focus is firmly on price pressures, with a gauge of commodities at a decade-high and a report later Tuesday expected to show a fourth month of U.S. inflation at 5% or more. Gold was at $1,792.45 an ounce.

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

8:00 a.m.: U.K. July unemployment, August jobless claims change

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

9:00 a.m.: Spain August CPI

9:30 a.m.: Sweden August CPI

10:00 a.m.: Netherlands to sell bonds

10:30 a.m.: Spain to sell bills

11:00 a.m.: Italy to sell bonds

11:00 a.m.: U.K. to sell bonds

11:00 a.m.: Finland to sell bills

11:00 a.m.: Hungary to sell bills

11:15 a.m.: Switzerland to sell bills

11:30 a.m.: Germany to sell bonds

12:00 p.m.: Portugal releases tourist activity report

12:30 p.m.: ESM to sell bills

1:00 p.m.: Russia to sell notes

3:00 p.m.: BOE’s Bailey speaks at Bloomberg event

IEA monthly Oil Market Report

Corporate Events

Earnings include JD Sports Fashion, GalaxyCore

Apple unveils new iPhone and Watch models

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