Thursday 5 August, 2021

“The dollar saw a rise on Thursday due to the Federal Reserve’s hawkish comments that rate rise plans are starting to be sketched out, following a recent dip. The firm dollar reflects investors pricing for a rate rise as early as the end of 2022, certainly by the first quarter of 2023. Whilst the ECB is a long way from tightening its monetary policy due to battling to meet its inflation target, the Bank of England could announce a roadmap to raise rates at a monetary policy meeting on Thursday.”

Tim Hallinan, Trading Director

Main Headlines

Key officials at the US Federal Reserve have started to trace out conditions for scaling back monetary support amidst a strong economic recovery in the country. Vice-Chair Richard Clarida laid the foundation for the scaling back of the Fed’s $120bn asset purchase programme and an interest rate increase in 2023. This would be the first increase in interest rates from the current 0% rate since the beginning of the pandemic. Progress towards the Fed’s employment and 2% average inflation goals would warrant an adjustment to the central bank’s bond-purchasing programme.

UK Prime Minister Boris Johnson urged institutional investors to invest more money into British companies and infrastructure to create a “big bang” that powers an economic recovery. Together with Rishi Sunak, Johnson appealed to pension funds and investors to pour hundreds of billions of pounds into longer-term UK assets, drawing attention to innovating high-growth tech firms and infrastructure projects. In a letter to the investment industry, Sunak and Johnson highlighted that UK assets are being overlooked by institutional investors.

GBP

Sterling is lower against most majors overnight. England won’t require fully vaccinated visitors from France to isolate for 10 days. Six other EU nations, including Germany and Austria, were added to the lowest-risk green list. The U.K. also eased rules for arrivals from India and the UAE. During trips to Scotland, both Boris Johnson and Keir Starmer gave SNP leader Nicola Sturgeon a wide berth. Sturgeon represents a political threat to both leaders and their support base. Sturgeon remarked that it was a bit odd that Johnson did not meet with her to discuss the UK recovery from the pandemic.

EUR

The euro is lower against the dollar and higher against the sterling in early morning trade. Momentum to vaccinate younger populations is spreading across Europe with efforts to vaccinate 12 to 17 years ramping up in Germany, France, Denmark, Spain and the UK. Turkey’s President, Recep Tayyip Erdogan has been criticized over his government’s response to wildfires in the south of the country. The absence of national preparations for what is seen as a perennial threat has angered Turkish citizens, with national firefighting aircraft having to be offered by Ukraine, Russia and Spain to help put out fires.

USD

The dollar is well-bid against most majors overnight. The US is considering requiring foreign visitors to be ‘fully vaccinated’, citing that the White House is considering measures to enable the “safe and sustainable reopening of international travel.” Due to a rise of Delta variant cases in the United States, officials warned that existing restrictions would be maintained and could be developed further. The US prohibits entry to most visitors from the EU, UK, China, Iran, India, South Africa and Brazil at this time. The US Treasury announced it may cut the sales of government debt for the first time in five years as funding requirements for economic relief ease.

Markets

Asian stocks and U.S. equity futures were steady Thursday as investors assessed mixed U.S. economic data and comments from a Federal Reserve official that the central bank is on course to taper stimulus support. Equities edged up in Japan but slipped in Hong Kong and China, where Beijing’s regulatory curbs continue to dominate the agenda. The S&P 500 fell from a record overnight, led lower by energy shares, while the technology sector proved more resilient. U.S. and European contracts were little changed.

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

8:00 a.m.: Germany June factory orders

8:45 a.m.: France June industrial output

9:30 a.m.: Germany July Markit construction PMI

10:00 a.m.: U.K. July new car registrations

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

10:30 a.m.: U.K. July Markit/CIPS construction PMI

10:30 a.m.: Spain sells bonds

10:50 a.m.: France sells bonds

1:00 p.m.: BOE monetary policy

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

Czech Republic central bank policy decision

Egypt central bank policy decision

Corporate Events

Earnings include Glencore, Aptiv, Aurubis, Continental, Swisscom, Norilsk Nickel, Eurofins Scientific, Evonik, WPP, Rolls-Royce, Nintendo, KBC, Mondi, Evraz

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