November 1, 2022

“The Reserve Bank of Australia (RBA) raised rates by 25bps for the second time to 2.75%. The Fed and Bank of England are due to deliver monetary policy decisions this week setting the stage for another turbulent few days. Markets will be paying close attention to the less hawkish stance expected from Fed and the BOE will likely take centre stage in the minds of investors.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Joe Biden has accused oil companies of “war profiteering” as he raised the possibility of imposing a windfall tax if companies don’t boost domestic production. In remarks yesterday, just over a week away from the 8 November midterm elections, Biden criticised major oil companies for making record profits while refusing to help lower prices at the pump for American people. The president said he would look to Congress to levy tax penalties on oil companies if they don’t begin to invest some of their profits in lowering costs for American consumers. Over the last two quarters, ExxonMobil, Chevron, Shell, BP, ConocoPhillips, and TotalEnergy earned over $100bn more than they earned all of last year, and more than two-and-a-half times what they earned in the same quarters of 2021.

Britons are being told to brace for blackouts this winter if energy supplies run low. UK energy bosses warn short rolling power cuts are a possibility this winter, as Vladimir Putin’s tactical tightening of gas pipelines in Europe starts to bite. To make matters worse, weather experts at the Met Office are now warning of an increased chance of a colder-than-usual winter this year. This could further up demand on gas and electricity supplies, as Britons turn up the heat to keep their homes warm. John Pettigrew, the boss of the National Grid attempted to calm fears the UK could run out of gas and electricity this winter. He said it was the National Grid’s ‘base case’ assumption that the UK would have enough energy supplies to meet heating and lighting demand this winter. But he added that short rolling power cuts were a possibility.

GBP

Sterling is well bid against most major currencies overnight. The Treasury has warned of “inevitable” tax rises as Prime Minister Rishi Sunak seeks to fill a “black hole” in public finances. Mr Sunak and Chancellor Jeremy Hunt met yesterday to discuss options for the financial statement on 17 November. They agreed “tough decisions” were needed on tax rises, as well as on spending. The Treasury gave no details but said “everybody would need to contribute more in tax in the years ahead”. The government has sought to brace the public for the impending change of direction. As he entered Downing Street last week, Mr Sunak warned the public that a “profound economic challenge” lay ahead in the coming months.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Eurozone inflation surged past expectations to hit double digits for the first time, piling pressure on the European Central Bank to keep raising interest rates amid warnings that prices have not yet peaked. Inflation jumped to 10.7pc in the year to October, according to Eurostat. This is higher than the 10.3pc increase expected by economists and up from 9.9pc the previous month. This includes Germany, where inflation rose to 11.6pc in October, the highest since reunification in 1990, and Italy, where electricity prices jumped 59pc to reflect an increase in wholesale costs, pushing inflation up to 12.8pc. The increase was driven by soaring energy prices after Russia slashed gas supplies to the Continent.

USD

The dollar is weaker than most major currencies in the early morning trade. The dollar gained across the board yesterday, regaining some of its lost earlier in the month, bolstered by expectations of another supersized rate increase at this week’s Federal Reserve monetary policy meeting. That said, the dollar’s gains could be limited if the Fed signals on Wednesday that the pace of rate hikes will slow as it assesses the impact so far of its policy tightening. The Fed is widely expected to raise its benchmark overnight interest rate by 75 basis points to a range of 3.75% to 4.00%, its fourth such increase in a row. But for the December meeting, fed funds futures have priced in yesterday a 55% chance of a 50-bps rate increase, down from about 67% last Friday.

Markets

European markets were higher this morning with global investors focusing on the US Federal Reserve’s policy meeting, which begins today. The Stoxx 600 index rose 1.3% shortly after the opening bell, with all sectors and major bourses in positive territory. Mining stocks led the gains, up 3.3% during early morning deals. Many on Wall Street are looking for a signal from the Federal Open Market Committee’s statement or Chairman Jerome Powell’s press conference that the Fed could pause its hikes or reduce their size in the coming months. Elsewhere, Asia-Pacific shares were higher led by Hong Kong stocks and US futures were higher this morning. Futures tied to the Dow Jones Industrial Average were up 104 points, or 0.32%. Futures tied to the S&P 500 and Nasdaq 100 both added 0.35%.

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

7:00 a.m.: Russia Oct. S&P Global manufacturing PMI
8:00 a.m.: Germany Sept. import price index
8:00 a.m.: UK Oct. Nationwide house prices
8:00 a.m.: Turkey Oct. S&P Global manufacturing PMI
8:30 a.m.: Sweden Oct. Silf manufacturing PMI
9:00 a.m.: Czech 3Q GDP
10:30 a.m.: UK Oct. S&P Global/CIPS manufacturing PMI
11:30 a.m.: Germany sells linkers
12:30 p.m.: Riksbank’s Ingves speaks
3:00 p.m.: Ukraine sells bonds
Global Financial Leaders’ Investment Summit starts in Hong Kong

Corporate Events

Earnings include BP, Thomson Reuters, Pfizer, Eli Lilly, AMD, Airbnb, Uber, KKR, Newmont, Clorox, Markel

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