November 11, 2022

“The US dollar collapsed across the board after US inflation was down to 7.7% in October, from 8.2% in September, raising odds the Fed could slow the pace of interest rate hikes, with the peak for US rates now expected to be below 5%. GBPUSD edged higher as sterling showed a firmer tone this morning after UK Q3 GDP fell by 0.2%, which was better than anticipated, but could signify the beginning of a long recession.”

Sam Cornford, Partner – Head of Trading

Main Headlines

A US District Court in Texas last night blocked President Joe Biden’s student loan forgiveness program on the grounds that the administration didn’t have the authority to act. The fresh injunction is in addition to a block from the Eighth US Circuit Court of Appeals, which put the program on hold nearly three weeks ago while it considered a separate lawsuit brought by six states challenging the program and the president’s authority to act. The administration has said it can offer far-reaching loan forgiveness under a 2003 law that allows for such measures during national emergencies. In this case, that emergency is the pandemic.

Britain’s economy shrank in the three months to September at the start of what is likely to be a lengthy recession, underscoring the challenge for finance minister Jeremy Hunt as he prepares to raise taxes and cut spending next week. Economic output shrank by 0.2% in the third quarter, less than the 0.5% contraction analysts had forecast in a Reuters poll, Friday’s official data showed. But it was the first fall in gross domestic product since the start of 2021, when Britain was still under tight coronavirus restrictions, as households and businesses struggle with a severe cost-of-living crisis. The Resolution Foundation think tank said that although the fall was smaller than investors had feared, it left Britain on course for its fastest return to recession since the mid-1970s.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. Sterling edged higher against a weakening dollar this morning after British economic data came in stronger than expected. According to official data, Britain’s economy shrank by a less severe than-expected 0.2% in the three months to September, which is likely to represent the start of a lengthy recession. The pound scored its biggest daily gain since March 2020 against the dollar on Thursday after US consumer prices cooled off in October, supporting expectations that the Federal Reserve might slow down its rate tightening path.

EUR

Euro is well bid against most major currencies overnight. The European Union is set to examine bridges, railways, and airports across its member states to identify any military weak points amid the war in Ukraine. In a bid to help its armies move faster in time of conflict, the European Commission unveiled a new action plan to find any gaps in European infrastructure that could slow them down. It comes at a time when war rages on between Russia and Ukraine in one of the continent’s biggest conflicts since the Second World War. Meanwhile, the EU Commission presented a proposal today to reduce air pollution from new motor vehicles sold in the EU to meet the European Green Deal’s zero-pollution ambition, while keeping vehicles affordable for consumers and promoting Europe’s competitiveness.

USD

The dollar is weaker than most major currencies in the early morning trade.  The dollar fell sharply yesterday after US consumer prices rose less than expected in October to suggest underlying inflation is cooling, data that Wall Street cheered as it may allow the Federal Reserve to get less aggressive with interest rate hikes. The data boosted other currencies against the dollar. The Japanese yen at one point climbed to its biggest single-day rise since 2015 and the British pound notched its biggest daily advance since 2008. Equity markets soared, with the Nasdaq surging more than 6%. But Cleveland Fed President Loretta Mester indicated it was too early to sound the all-clear, saying the main risk to inflation is that the US central bank does not hike rates enough.

Markets

The pan-European Stoxx 600 was up 0.7% in early trade, with financial services adding 2.4% to lead gains while the health care sector slipped 0.7%. The European blue chip index closed 2.8% higher following yesterday’s consumer price index print, which sent major averages stateside to their biggest one-day rallies since 2020. US stock futures rose early this morning, pointing to further gains on Wall Street, with investors also keeping an eye on outstanding results from the US midterm elections.

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

8:00 a.m.: UK 3Q GDP, Sept. Industrial Production, Trade Balance
10:00 a.m. ECB’s Holzmann speaks
11:00 a.m.: EU publishes economic forecasts
12:00 p.m.: BOE’s Haskel speaks
1:00 p.m.: ECB’s Panetta speaks
1:00 p.m.: ECB’s de Guindos speaks
1:45 p.m.: SNB’s Jordan speaks
2:10 p.m.: BOE’s Tenreyro speaks
5:00 p.m.: ECB’s Lane speaks
5:00 p.m.: ECB’s de Cos, Centeno speak
6:30 p.m.: ECB’s Nagel speaks
COP27 in Egypt through Nov. 18

Corporate Events

Earnings include Richemont, Cellnex, Naturgy