September 22, 2021
“The dollar held below a near one-month high today as investors focused on two key risks, the expected pace of U.S. monetary policy tightening and a default by Chinese property developer Evergrande. Due to worries about the developer, the market is still in risk-off mood, with both the dollar and the yen supported.”
Sam Cornford, Partner – Head of Trading
Democrats in the House of Representatives passed a bill yesterday to fund the US government through Dec. 3 and suspend the nation’s borrowing limit until the end of 2022, sending it to the Senate where Republicans have vowed to block it. The House vote was 220-211 along party lines. It was unclear how soon the Senate would act. If Republicans stick by their refusal to support the measure in the Senate, Democrats will have to come up with a new strategy or quickly face the twin problems of a government in partial shutdown that is unable to pay its bills and the risk of a default for the first time in modern history.
An inquiry has issued fresh warnings about the potential for HS2 to go massively over budget. In a new report today, MPs said there was “no clear end in sight” to HS2 cost or delays, with “many difficulties ahead”. The Commons Public Accounts Committee, which includes Black Country MP Shaun Bailey, said that based on HS2 Ltd’s own figures the final cost of the line could be between £72 billion and £98 billion , an increase from the original budget of £55.7 billion. The inquiry stated that, “While HS2 Ltd consider these estimates to be realistic, uncertainty remains, particularly when a substantial amount of the Phase One programme is still to be procured.”
Sterling is weaker than most majors in the early morning trade. US President Biden warned Boris Johnson on a meeting yesterday that he doesn’t want to see a trade deal with the UK lead to a “closed border” in Ireland. When asked about Brexit, during the meeting with Johnson, Biden said that the trade deal with the UK is still “being discussed” However, Biden added that he “feels very strongly” about the Northern Ireland protocol. When asked by a reporter if the delay to the deal with the UK was due to his Irish heritage, Biden said that he wouldn’t like to see “a change in the Irish accords”. The EU has said on multiple occasions that the protocol can’t be negotiated again.
The euro is level with the dollar and higher than the pound this morning. Germany’s Social Democrats (SPD) saw their lead over Chancellor Angela Merkel’s conservatives narrow in a poll published on Tuesday, pointing to a tightening race just five days before a federal election. The centre-left SPD, whose candidate for chancellor Olaf Scholz is currently vice chancellor and finance minister in Merkel’s grand coalition, remained stable at 25%, according to the Forsa poll for RTL/n-tv television. Support for the conservative CDU/CSU alliance, whose chancellor candidate is Armin Laschet, edged up one percentage point to 22%. Merkel, in power since 2005, plans to stand down after the election. The SPD’s Scholz is German voters’ most popular choice by far to succeed her as chancellor.
The dollar is level with the euro and stronger than the pound overnight. A CNBC Survey on the tapering of the Federal Reserve found that 32 market participants shows they expect the Federal Reserve to announce a reduction in its $120 billion in monthly asset purchases in November and begin to taper in December. The Fed is expected to cut purchases each month by $15 billion. “The challenge for officials will be continuing to delink the timing of tapering from eventual rate liftoff amid splintering views within the FOMC,” said Kathy Bostjancic, chief U.S. financial market economist at Oxford Economics. Amid such concerns, the market still forecasts no rate hikes until the end of 2022. In fact, expectations for rate increases have actually eased since the more optimistic days in the spring when the reopening gathered steam.
U.S. and European equity futures rose Wednesday as investors evaluated indebted developer China Evergrande Group’s update on a bond interest payment and awaited the Federal Reserve policy decision. S&P 500 and Nasdaq 100 contracts climbed after swinging between gains and losses. China avoided a major selloff after trading resumed following a holiday during which global markets where whipsawed by fears of contagion radiating from crisis-hit Evergrande. A cash injection by the Chinese central bank shored up sentiment. MSCI Inc.’s Asia-Pacific index declined for a third day, dragged lower by Japan. Treasuries and the U.S. dollar were little changed. The yen weakened and commodity-linked currencies such as the Australian dollar pushed higher. Iron ore halted its collapse and metals steadied. Oil advanced for a second day. Gold was at $1,779.17 an ounce, up 0.3%.
Main Economic Data/Central Banks/Government (All Times CET)
9:00 a.m.: Riksbank’s Ohlsson participates in housing market discussion
10:00 a.m.: Italy releases revised national accounts to 2020
11:00 a.m.: Sweden sells bonds
11:00 a.m.: U.K. to sell linkers
11:30 a.m.: Germany to sell bonds
12:00 p.m.: EU to sell bills
1:00 p.m.: Russia to sell bonds
4:00 p.m.: Euro-area September consumer confidence
4:30 p.m.: EIA U.S. crude oil inventories
6:00 p.m.: BOE’s Sam Woods speaks
6:00 p.m.: Russia August PPI, industrial production; 3Q consumer confidence index
8:00 p.m.: FOMC rate decision
Earnings include General Mills, New Amsterdam Invest, Banque Centrale Populaire, Alten, Blackberry, Oxford Biomedica, Vectura Group