September 23, 2021

“The dollar eased from a one-month high today, after the Fed set the stage for rate hikes next year but left enough breathing room to slow things down if necessary, while sterling traded firmly ahead of a BoE meeting.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Emmanuel Macron, French President, agreed to return its ambassador to the US and Joe Biden has vowed not to cut Paris out of key future defence decisions in the Indo-Pacific after a phone call designed to calm French fury after he struck a submarine deal with Australia and the UK behind Emmanuel Macron’s back. In a joint statement, issued after the phone call ended a five-day standoff between the leaders, the two men agreed to meet in Europe in late October, probably at the G20 summit, to discuss how to improve consultations in future. Macron said he would dispatch his withdrawn ambassador back to Washington next week, but there was no sign that the US or Australia would go back on their decision to work together on building nuclear-powered submarines.

Britain is having talks with energy regulator Ofgem about whether or not a cap on gas and electricity prices for consumers may have to go up, junior business minister Paul Scully said today. The price cap, set by Ofgem, limits the cost of energy for about 11 million people on suppliers’ default tariffs. It is reviewed twice a year. It is due to rise 12% on Oct. 1 to 1,277 pounds ($1,741) for a household using an average amount of energy, and would in normal circumstances be reviewed again in April 2022. The wholesale price of gas has soared in recent weeks, putting increasing pressure on suppliers. Two suppliers stopped trading yesterday and Ofgem has warned that others will follow.

GBP

Sterling is stronger than most majors in the early morning trade. Britain’s central bank looks set to keep interest rates steady later on Thursday as it approaches the end-point of its 895 billion pound ($1.22 trillion) asset purchase programme and casts a wary eye over surging inflation pressures. Investors will be keen to see if more Monetary Policy Committee (MPC) members join external member Michael Saunders who voted in August to halt the current year-long programme of asset purchases, which the Bank of England committed to last November. The BoE is ahead of other major central banks in planning to stop quantitative easing by the end of this year, and half its policymakers judged in August that some preconditions for an interest rate rise had already been met.

EUR

The euro is significantly higher than the dollar and slightly lower than the pound this morning. The far-right SPD party, which may play a role in forming a new Czech government next month, would demand the cabinet propose legislation that could lead to a referendum on leaving the European Union, party chief Tomio Okamura said on Wednesday. “One of the fundamental conditions is for the government manifesto … to include a referendum law including the possibility of a referendum on leaving the EU or potentially NATO,” Okamura told reporters after meeting President Milos Zeman, whose role will be to moderate post-election negotiations and appoint the prime minister. The SPD has promoted leaving the EU and an EU exit referendum for many years. An opinion poll by the CVVM agency in July showed 66% of Czechs supporting EU membership, while 28% said the country should not be in the EU.

USD

The dollar is lower than most majors overnight. The Federal Reserve is on the cusp of paring back its huge support for America’s economy as officials at the central bank prepare to raise interest rates as soon as next year. A reduction in the Fed’s $120 billion monthly bond buying programme “may soon be warranted”, it said tonight, as the world’s largest economy continues to recover. Jerome Powell, chairman of the Fed, said officials believe a “gradual tapering process” concluding by next summer is “likely to be appropriate” providing the recovery remains on track. It could launch the process at its next meeting in November. The dot plot, in the central bank’s newly released economic forecast for the next few years,  showed a rate hike in 2022 because it averages all 18 forecasts on where interest rates would end up.

Markets

Stocks gained along with U.S. and European futures Thursday as traders weighed the debt woes of China Evergrande Group and the prospect of a reduction in Federal Reserve stimulus as early as November. Equities in China and Hong Kong rose modestly, while European and U.S. contracts climbed after the S&P 500 pushed higher for the first time in five sessions. Evergrande’s stock rallied before paring the advance, signaling concerns remain about the crisis-hit developer’s more than $300 billion of liabilities. A liquidity injection by China’s central bank aided sentiment. Chair Jerome Powell said the Fed could begin scaling back asset purchases in November and complete the process by mid-2022. Officials also revealed a growing inclination to raise interest rates next year. The Treasury yield curve flattened. Cash Treasuries aren’t trading in Asia because of a Japan holiday. The dollar slipped. Gold was at $1,766.70 an ounce, down 0.1%.

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

9:00 a.m.: Spain 2Q GDP

9:15 a.m.: France September PMIs

9:30 a.m.: SNB policy rate

9:30 a.m.: Germany September PMIs

10:00 a.m.: ECB publishes economic bulletin

10:00 a.m.: Norges Bank sets deposit rates

10:00 a.m.: Euro-area September PMIs

10:10 a.m.: Hungary Central Bank chief speaks

10:30 a.m.: U.K. September PMIs

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

11:45 a.m.: ECB’s Elderson speaks

1:00 p.m.: BOE bank rate

1:00 p.m.: September BOE gilt purchase target

1:00 p.m.: Turkish central bank sets one-week repo rate

SARB sets interest rate policy

Corporate Events

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