In this September 17, 2021 macro market briefing, the host provides a rapid rundown of recent economic data, policy signals, and geopolitical developments affecting global markets. He begins with UK retail sales, which fell 0.9% YoY in August, prompting a modest weakening of the pound. He then examines a surprise euro rally triggered by a Financial Times report that the ECB expects to hit its 2% inflation target by 2025 and may raise rates earlier than markets anticipate, despite the ECB’s own denial. The briefing moves to China, highlighting the systemic‑risk concerns surrounding Evergrande after state media declared it “not too big to fail,” and notes a Delta‑variant COVID outbreak in Fujian province and rising case expectations in South Korea. The host outlines UK Chancellor Rishi Sunak’s upcoming fiscal rules aimed at halting day‑to‑day borrowing within three years, framing it as a political move toward Tory fiscal discipline. He then discusses the new UK‑US‑Australia nuclear submarine security pact, the French backlash over lost submarine contracts, and the broader China‑US tension. Upcoming data points are previewed, including the University of Michigan consumer sentiment release, and the briefing concludes with an explanation of the day’s “quadruple witching” expirations across major indices and their typical market impact. Throughout, the host intersperses references to related podcasts and encourages listeners to stay informed for the week ahead.
Chapters
Okay, very good morning. It's Friday the 17th of September. Hope you are doing well. Apologies for no briefing yesterday. It was our summer analyst party on Wednesday night, and so you have to forgive me for having the morning off, but absolutely fantastic to meet some of those analysts we've been working with all summer virtually. So Hope everyone enjoyed it. And if you're listening to this, it was really great to, to meet everyone in person. But don't forget as well, we've got the Market Maker podcast episode coming out. I'll be having a chat with the head of trading, Piers Curran, a bit later on. So feel free to check it out on Apple, Spotify, Google Podcasts and the rest as we look to review the week in summary. But let's get straight to it and talk about what's going on in markets this this morning. And a couple of things to be aware of. We got a little bit of softening here just occurring in the British pound. And this comes after we've just had the release of UK retail sales come out, came in for August month to month at -0.9% versus expectations of +0.5%. And this is the second month in a row that retail sales in the UK have missed expectations. As you can see here, we've seen a bit of a move lower now, starting to just pick up traction, but fairly contained, I would say, despite the fairly sizable miss, perhaps somewhat explained and the move a little bit more controlled given the fact that there were some lingering effects of the pan— or the pingdemic, if you remember, in the UK, as self-isolation rules were not eased until the middle of August around the 16th. So perhaps explains why, why actual retail activity was pretty weak in that particular month. But just a small downtick observed there. The euro was quite interesting actually yesterday evening. You can see here quite a clearly distinguished green candlestick over a 30-minute timeframe here. I'm looking at this, I'll put a rectangle above it here. This move came at around 8 PM last night, London time. And the rationale behind that was this article here came out as an FT kind of exclusive, and the FT reported the ECB expects to hit its elusive 2% inflation target by 2025 according to unpublished internal models that suggested it's on course to raise interest rates in just over 2 years. Now, as a bit of context, that would be at least a year earlier than than most economists expect the ECB to raise its deposit rate from its current record low level of -0.5%. So much hawkish interpretation of inflation and the consequent timing of rate hikes, and hence the reason why the euro rallied last night. However, and quite interesting then to see how quickly this happened and also the fact it was pretty much in the middle of the night, so at just after 11 PM London Times, only a few hours after the ECB themselves came out and said the story regarding inflation and potential rate increases is not accurate, with the conclusion on rates not consistent with its forward guidance. So whether or not, you know, this is quite a controlled way— some would say, you know, there's no smoke without fire— the ECB kind of drip feeding in because they don't want a divergent policy too much between an ultimate tapering and tightening commencing in the US, whereas the ECB are too far behind, and you get this, this extreme divergence. So perhaps it's a little bit of calculated drip feeding in to keep the markets in check, uh, not that, that, um, the ECB are going to be too passive with things, but regardless, the euro this morning has continued to just move a little higher here, coming up to near-term resistance, as you can see from from the lows that we were seeing back at the beginning of the week, and also being a bit of an inflection point that we had in yesterday's session. We're just up there testing at that level around 1.1794 in the futures this morning. So again, even though the ECB have kind of denied that story, it's still carrying a little bit of weight for the time being for those aforementioned reasons. Otherwise, elsewhere, equity markets, we had a Slightly negative finish in the S&P and Dow, both down in a region of about 0.2%. The Nasdaq was up marginally, outperforming about 0.13%. Not really too much there to speak of at the moment, but one thing to note in the overnight Asia-Pac session was some commentary in regards to quite a talking point for this week, which has been the property developer in China, China Evergrande Group. And particularly because the kind of mouthpiece of Chinese state media, the Global Times editor, wrote overnight that China Evergrande is not too big to fail. And obviously that wording very much because people are looking at the potential contagion effect it could have given how large this company is and how integral it is to potentially a systemic risk to the Chinese system in a Lehman-esque type way of what we saw during the financial crisis. So again, still under pressure, still a major talking point there domestically, has been a bit of a weighted factor overnight as it has been throughout the week. If you're still thinking, you know, who are Evergrande? What do they do? How did they end up in this situation? What comes next? All of these types of questions. I had a really great chat with Eddie on the team a bit earlier this week, so feel free to check that out. I'll drop the link into the video when I post this, just to make things easier for you. But definitely Eddie's got some fantastic insights and worth having a look at that video when you get time. Um, sticking with the Far East, just a quick update on COVID. Um, here an outbreak of the highly infectious Delta variant of COVID-19 in southeastern China's Fujian province has spread now to a fourth city as new cases continue to rise. And elsewhere we've seen South Korea's health authorities now bracing for a possible spike infections as millions of South Koreans are expected to travel across the country for Korean Thanksgiving holiday that starts from Saturday as well. So definitely worth keeping an eye on case rates within that region. And obviously China's still very much so tackling that ongoing Delta outbreak that they've been seeing, and comes in the context of a number of challenges they're facing at the moment— the Evergrande story, the moderation they're seeing in economic data price pressures on the PPI number, a 13-year high, so on and so forth. Um, other things just wanted to quickly mention was Rishi Sunak, UK Chancellor. I definitely don't think that this is a consideration for the pound in the short term, intraday, from a trading perspective, but from a political perspective, it is quite interesting. Sunak is planning to use next month's budget to lay out new rules to rein in government borrowing amid Treasury concerns that any rise in interest rates could blow a hole in the heavily indebted public finances. While the new rules will commit him to stop borrowing to fund day-to-day spending within 3 years, it's said to be a move intended to illustrate the kind of more classical approach of Tory fiscal discipline ahead of the next election. And of course, this comes after that cabinet reshuffle that we had out of Boris Johnson as well. Clearing out some of the more PR-damaging characters like Dominic Raab and so forth. And so this as well, given the post-pandemic environment, as Boris looking to reassert himself in the same way as well, the Chancellor looking to do that with more fiscal prudency. And then on the geopolitical front, you might have read about, heard about this in the just a more broader news in general. Because there's a few unhappy people in regards to what's happened here with a new security pact between the UK, US, and Australia. So China has hit out first at Australia, UK, and US for playing what they called political games after they struck a new security pact with Australia to acquire nuclear-powered submarines. And the reason why the French have got their backs up is the fact that France was in conversations for a $90 billion program with Australia, who were going to buy conventional-powered submarines. But instead, the UK has swooped in with their nuclear option submarines, um, not equipped but powered by that technology in combination with the US. So the French are incredibly unhappy, and so the US have kind of brought in one ally to distance the other, i.e., bring in the UK, push out the French. And actually, the French Navy and the head of the French Navy themselves is actually in the US at the moment, and they were supposed to have done like a joint symbolic exercise about their strategic relationship over many hundreds of years, and that's now not going to take place because of what's happened. And China, of course, seeing this as quite a negative development in terms of the allied forces, if you like, against China and within that specific region. And so, yeah, interesting because what, a week or so ago we were talking about the first more lukewarm telephone call between President Biden and Xi Jinping. You know, we fast forward another week and it's kind of like we've made very little progress. Um, on that regard, to be honest. So again, not really too much for trading today, but definitely worth being aware of. From the calendar perspective, we've already had the UK numbers, as I said, a little bit soft, some slight weakening in sterling currency. Otherwise, this morning, the HICP numbers coming out of Europe are final readings, so unlikely to be market moving. No major 1:30s out of the US, but a couple things to be aware of. We've got the University of Michigan prelim figure So the more market-sensitive of the two, prelim-final. This is the first reading for September, that'll be at 3 o'clock. We are for that expecting it to remain fairly unchanged from the prior reading. The headline expected at 70.2. Worth recapping that last month's low, 70.3, was the weakest reading we've had in more than a decade. And so while consumer confidence? Why is it collapsing in the US? Well, it's mainly down to the fact that personal financial prospects continue to worsen due to smaller income gains amid higher inflationary trends. Plus also you've got this Delta variant still very much present as well in the US, so expecting that number to remain fairly depressed might not be the most unexpected thing then, and thus market reaction might be relatively tame in that regard. The other thing then, if we scroll down, is here you can see there's a whole bunch of expirations happening today, and this is very important. And the reason why is because it is quadruple witching. So as you can see here, staggered with the FTSE first at 10:15 London time, Eurostoxx 11, DAX 12, US indices at 2:30, uh, the CAC 40 in France at 3 o'clock, and so on. It's quadruple witching, and that refers to the date of which derivatives of stock index futures, stock index options, stock options, and single stock futures expire simultaneously. So as a guideline, quadruple witching occurs once every quarter, the third Friday, March, June, SEPC, can witness heavy trading volumes, in part due to the offsetting of existing futures and option contracts that are profitable. While it may result in increased volume and arbitrage opportunities, doesn't necessarily translate into increased volatility in the markets, but it's something you might hear about today. It's a word that obviously you hear pop up on the third Friday on every quarter, so something to just be aware of from an intraday trading perspective. It does mean that when we go into these expiration times, there is generally just a little flicker of volatility, very short term, around those periods. And we do, as mentioned, see higher volumes more broadly. So just worth being aware of that. And that is it. So gonna leave it there. Gonna wish you guys a fantastic weekend. Please do remember to check out the podcast as well, and I will see you on Monday morning. All right, take care.
