Panic around the energy crisis faded a little after Russia offered Europe a helping hand. Stock markets came back swinging but the FX complex didn’t see much relief, with the mighty dollar holding everything else down. Inflation/growth story will remain front and center with the release of American CPI numbers and retail sales, as well as the latest Fed minutes.

Give me shelter

The US dollar has reclaimed its throne as king of the FX arena, slicing through its rivals as investors looked for shelter from the storm in equity and energy markets. From paralyzed supply chains to an energy crisis that threatens to cripple Europe and Asia, there’s a real risk that global growth slows but inflation remains hot.

And with bond yields rising everywhere because of inflation concerns, the dollar is almost the last defensive hedge left across all asset classes. Neither bonds nor gold nor the yen are attractive in an environment of rising yields. The key report to watch will be September’s consumer price inflation. After a reopening spike in key areas we have seen the rate of price increases moderate, but it is still faster than we saw pre-pandemic with higher food and housing costs particularly evident. This will keep the YoY inflation rates elevated with the risk being that they rise further in coming months given supply chain issues and inventory shortages as we go into the key holiday season.

Given the NFP miss continued inflation increases could be needed for the FED to confirm tapering in November.

UK data unlikely to test market’s Bank of England conviction

Markets are pricing almost three UK rate rises by the end of 2022, and expectations for earlier hikes have been fuelled by recent rises in energy prices. Given the UK’s chronically low gas in storage, further power price pressure is possible. However, we aren’t convinced this makes a rate hike more likely – and if anything, it is a dovish factor given it’ll act as a brake on consumer activity. Instead, the prospects of tightening hinge on wage growth and here, hopes may get a lift from another solid jobs report.

Weekly data points to another fall in the three-month unemployment rate, and hiring data generally has pointed to an encouraging recovery in demand over recent months. Vacancies are high, though we’re also likely to see some redundancies over coming months as the furlough scheme ends. The impact on unemployment may not be huge, partly because some of the job losses will show up as ‘inactive’.

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In short, the jobs market is in a state of mismatch. So the question for policymakers is whether the sharp pay rises in shortage roles (e.g. lorry drivers) spread elsewhere – and the jury’s still out. We think the cost of living spike over the winter means caution is likely to prevail at the Bank of England, and we’re not expecting the first rate rise until May 2022. We have a couple of BoE ‘doves’ in the calendar next week too, and it’ll be interesting to see if they push back on current market pricing.

Eurozone: Dip in production expected but trade continues to increase

The eurozone focus will be on manufacturing this week as trade and production data are set to be released for August. Shortages continue to bite on the production front, and expectations are for another decline in August. Despite all of the supply chain frictions and transport problems, trade continues to increase though. This will make the August trade balance an interesting figure to watch to get a bit of a sense of how net exports will perform in the third quarter.

Energy fears take a breather thanks to PUTIN

Rising energy prices and shortages continue to weigh on the eurozone with the US shielded. The American economy is heavily shielded from the power shortages thanks to its self-sufficiency on energy, and Congress is likely to deliver another massive spending package soon to power up the recovery. The fallout from the energy fiasco will probably impact Europe and Asia much more, hence the euro’s inability to recover even after Vladimir Putin promised to release more natural gas. 

Asia week ahead

A policy meeting in Korea, GDP figures from Singapore and inflation figures from China and India are the week’s highlights. Chinas economy and numbers have become almost as relevant as the US with China seen as the driving force of global growth. With many analysts downgrading their outlook on the US economy heading into Q4, China will be of particular interest.

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Wall Street, Can Earnings change things??

Weak NFP numbers, may allow the Fed to delay tapering its stimulus program which the equity market has become increasingly reliant on. But that should not really be comforting in the face of the dreaded stagflation. The US may be headed for slowing growth but rising inflation.

Some good news at least this week with the gradual acceptance that Evergrande may not take down the global financial system as investors focused instead on something that could, that being a US debt default. With Bank Earnings out later this week optimism remains for strong earnings which could provide markets with a much needed boost.


Following a quiet weekend, Bitcoin regained its traction and renewed five-month highs above $56,000. Trading close to ATHs wih many of the opinion we will break and continue higher. Ethereum is up more than 3% on a daily basis and is trading around $3,500.