Tuesday 3 August, 2021

“The dollar dipped again due to unconvincing manufacturing data and increased Covid-19 cases in the US placing uncertainty on the strength of the greenback. Elsewhere, safe-haven currencies such as the Japanese yen and Swiss franc continue to remain competitive, contributing further to the dollar’s dip.”

Sam Cornford, Partner & Head of Trading

Main Headlines

Governor of the Federal Reserve, Christopher Waller stated yesterday that if the next two monthly employment reports show strong gains on jobs, then the Fed may scale back bond purchases. If the data is similar to the last report, then an announcement on scaling back bonds could be made by September. Waller indicated that the central bank could start to reduce its support for the US economy if the next two monthly jobs reports show employment rising by 800,000 to 1 million. The Fed’s intention is to taper stimulus early so that it can raise interest rates in 2022, if needed.

Boris Johnson has scrapped an amber list ‘watchlist’ as part of the UK’s Covid-19 travel rules for fears that it will cause hundreds of thousands of UK tourists to cancel European holidays. An amber watchlist – on which a country is at risk of moving to the red list at any moment – has caused anxiety and uncertainty for travellers from the UK. Johnson’s U-turn comes amid criticism that the amber watchlist was unfeasible, with Tory MPs and the travel industry stating that popular destinations such as Spain or Italy could be placed on the list overnight, forcing travellers to hastily book flights and return home.

GBP

Sterling is well-bid against most majors overnight. UK Chancellor, Rishi Sunak is resisting pressure from investment banks to remove the cap on bankers’ bonuses, who claim this move would keep the UK competitive as part of a series of post-Brexit reforms. The chancellor fears that removing a ceiling which limits bonuses to two times salary, would be politically unpopular. The UK ‘pingdemic’ has left 25% of English nightclubs facing closure or reduced hours as a quarter of venues across the country have announced that all their staff are isolating after being contacted by NHS test and trace.

EUR

The euro is lower against sterling and higher against the dollar in early morning trade. German health minister Jens Spahn announced that Germany will offer Covid-19 booster shots from September and increase access for 12-to-17-year old’s to get a Covid-19 vaccination across Germany’s regions. Belarusian opposition leader, Sviatlana Tsikhanouskaya has urged the EU, US and UK to increase sanctions and political pressure on Alexander Lukashenko in an effort to restore democracy and end repression. This follows Poland granting a humanitarian visa to Krystsina Tsimanouskaya, the high-profile Belarusian Olympic sprinter.

USD

The dollar is lower against most majors overnight. The bid to speed the infrastructure bill through the Senate this week has faced its first challenge when key Republican Lindsey Graham tested positive for Covid-19, causing him to miss votes and potentially causing more positive tests which may upset the bill’s schedule. Despite this, Susan Collins, a Republican Senator from Maine, insists that the Infrastructure Bill will pass as at least 10 GOP lawmakers will back the $1 trillion spending package this week. More cities and retailers in the US are bringing back masks, including Louisiana, San Francisco and retailer Target, amid rising delta variant cases.

Markets

Asian stocks were mixed Tuesday and Treasury yields held a retreat amid concerns the economic recovery from the pandemic is losing momentum. Shares in China and Hong Kong edged lower, still feeling the effects of Beijing’s clampdown on private industries. Japan also declined. S&P 500 and Nasdaq 100 contracts posted modest gains while European futures declined. Increased Delta variant cases and signs of softer U.S. manufacturing growth contributed to an overnight S&P 500 dip. The real yield on 10-year Treasuries — which strips out the expected impact of inflation — was close to a record low. Oil held a plunge as the virus and indications of a slower Chinese economic rebound hurt the outlook for consumption.

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

9:00 a.m.: Spain July unemployment

9:00 a.m.: Switzerland 3Q SECO consumer confidence

11:00 a.m.: Euro-Area July PPI

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

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

11:30 a.m.: Belgium to sell bills

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

Corporate Events

Earnings include BP, Stellantis, DSM, Assicurazioni Generali, Jazz Pharma, Willis Towers, Eli Lilly, Amgen, Alibaba

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