Despite a quiet economic calendar, some interesting headlines have moved the markets. Increased energy prices and increased inflation are likely to continue into winter, as the BoE basically admits that monetary policy has nothing to do with this inflation and that it's all due to supply shocks from the pandemic. Any other reason would have prompted the central banks to stop inflation a long time ago. One effect of a global lockdown is that no one needs a hire car, so Hertz has basically been staring at bankruptcy. The news today that they have ordered a new fleet of Tesla’s should do them a world of good, assuming they can find the finances.
Market Wrap
US natural gas futures had already risen more than 10% to above $5.8 per million British thermal units (BTU) during the London session and at the time of writing are now $6.046 BTU, the highest in three weeks. There are forecasts for cold weather in the next two weeks which will require an increasing export of liquefied natural gas. It is not just Natural gas on the rise in the commodity space, Oil and especially Chinese Coal are also at high price levels.
The EURUSD has been heavy today after business morale in Germany dropped for the fourth month in a row due to supply bottlenecks, according to this morning’s Ifo report. In October, the index dropped to 97.7 with the reading coming in at the lowest level since April. "Supply problems are giving businesses headaches," Ifo President Clemens Fuest said, adding that capacity utilization in manufacturing was falling. The Bundesbank said in its Buba report, that German economic growth is likely to soften sharply in the fourth quarter of 2021 due to supply shortages and weak demand for services.
It is not just weaker German business confidence that is keeping euro prices down today, on the flip side the US dollar is rising again and now above last Friday’s prices when Fed Chair Powell stated that the inflation pressures were going to be here for longer than expected. The DXY has cleared Friday’s trading range and is now stair-stepping higher away from last week’s lows. A test of $94.50 would be a tell on whether there is an appetite for a higher-priced greenback.
Tesla Inc's stock rose more than 4% in Monday's premarket trading after the news that car rental company Hertz made a massive order of the company's electric vehicles. Hertz plans to upgrade its fleet in an attempt to recover from bankruptcy. It was announced earlier today that Hertz Corp. has ordered 100,000 new cars to be delivered by the end of next year in a deal worth at least $4.4 billion. I had already written about the possibility of $1000 per share at which level we are likely to see a stock split.
Even with a higher US dollar today the British pound is holding its own and could be about to pop out of this consolidation period. Today we heard from Bank of England monetary policymaker Silvana Tenreyro, who said that monetary policy cannot avoid certain temporary factors causing CPI inflation to rise above targets, such as base effects and energy price increases. This is obviously true but doesn’t seem that helpful in the short term. Surely it would be better for the BoE to follow the Fed and say that they have the tools to combat inflation?
"The effects of supply chain disruption should also be temporary, and unwind as the supply of some goods increases, and as demand rotates back towards pre-Covid consumption patterns. The speed of this rotation is a key uncertainty and will be related to the evolution of the pandemic around the world. In the UK, domestic cost pressures will depend on the evolution of the labor market now that the furlough scheme has ended."
Within the rest of the speech, there was an indication that higher inflation would see higher wages and that GDP growth moderation is set to continue due to higher energy costs this winter.
The GBPUSD sentiment indicator on the ActivTrader platform shows that most traders are still bearish the pound, which is a good sign for anyone looking to get long. We just need to be careful of higher volatility around the Budget announcements this week.