August 19, 2021
“The dollar rose to a nine-month high against other major pairs on Thursday, following indications from the Fed that they could start slowing the pace of bond purchases later this year given the progress made toward inflation and employment goals. The pound has declined modestly against the euro after UK inflation data was short-lived with the Bank of England on a more hawkish path than the ECB.”
Tim Hallinan, Trading Director
In the United States, a majority of Federal Reserve officials believe the US central bank could start withdrawing the sizeable $120bn-per-month asset purchase scheme stimulus programme later this year, according to the minutes from their latest Federal Open Market Committee meeting. The consensus amongst officials was to move towards tapering the scheme in place since March 2020, due to consistent progress towards inflation and unemployment goals in the US economy. The FOMC meeting minutes showed that the Fed is satisfied that the inflation target had been met but there is still work to be done to meet the unemployment target.
Scotland’s budget deficit rose sharply to 22% of economic output in 2020-21, highlighting the scale of the fiscal challenge the country would face if it pursued independence from the UK in the not-too-distant future. The more than doubling of Scotland’s deficit to £36.3bn in the year to April 2021 was caused principally by a rise in public expenditure in response to the Covid-19 pandemic. The rise in the budget deficit to 22.4% of GDP including Scotland’s geographic share of UK North Sea oil and gas tax revenues. The Scottish deficit compares to the UK’s budget deficit of 14.2% of GDP for the country as a whole.
Sterling is lower against all majors in early morning trade. Parliamentarians returned from their summer recess for a debate on the Taliban’s rapid takeover of Afghanistan yesterday. Boris Johnson was sharply criticised by MPs from across all parties for the government’s response to the crisis, including former PM Theresa May and former soldiers turned MPs. Lloyds Banking Group is aiming to become one of the UK’s largest landlords by purchasing 50,000 homes in the next 10 years. Entering the private home rental market under the Citra Living brand is part of Lloyd’s attempt to diversify income streams away from traditional lending.
The euro is lower against the dollar and higher against the sterling in early morning trade. European Central Bank employees in Frankfurt are protesting a decision to return to office-based working, citing fears of Covid-19 risks, after calls to work in the office three days a week from October 1st. Conservative politician and vocal-Merkel critic, Hans-Georg Maaßen, former chief of Germany’s domestic intelligence agency, will run as a candidate for the Christian Democratic Union during Germany’s general election on September 26th. Poland has sent 900 soldiers to its border with Belarus to stop a growing number of migrants trying to enter the country, as migration becomes a hotter domestic political issue in the country.
The dollar is well-bid against most majors overnight. The Biden administration announced that it would offer third doses of mRNA Covid-19 vaccines amid a wave of new Delta variant cases. Booster shots would become available from September 20th, eight months after an individual’s second dose. The US is struggling to evacuate its citizens and Afghan allies from Kabul, as the Taliban is blocking access to the airport. Defence Secretary, Lloyd Austin stated that it was clear that the efforts to extricate US citizens and eligible Afghans under the Special Immigration Visa programme “were not close to where we want to be in terms of getting the through numbers”.
Asian stocks fell to the lowest this year, crude oil sank and the dollar rallied on a weakening global growth outlook and the prospect of reduced Federal Reserve stimulus. MSCI Inc.’s gauge of Asia-Pacific shares fell more than 1%, with Hong Kong equities leading the slide as Chinese technology stocks struggled, including a plunge in Alibaba Group Holding Ltd. to a record low. U.S. and European futures edged down after the S&P 500 and Nasdaq 100 retreated overnight. Oil, copper and iron ore slumped, highlighting demand risks from the resurgence in Covid-19. Stocks are under pressure after the latest minutes showed most Fed officials agreed they could start slowing the pace of bond purchases later this year.
Main Economic Data/Central Banks/Government (All Times CET)
10:00 a.m.: ECB euro-area June current account
10:00 a.m.: Norway deposit rates
10:00 a.m.: Spain June trade balance
10:30 a.m.: Norges Bank Governor Oystein Olsen speaks
10:30 a.m.: Italy June current account balance
10:50 a.m.: France to sell bonds
11:00 a.m.: Sweden to sell linkers
11:00 a.m.: Ireland to sell bills
11:50 a.m.: France to sell linkers