November 14, 2022

“The greenback is presenting a rebound this morning, supported by Fed Governor Waller’s comments stating the central bank is far from done raising interest rates. He indicated that rates will not reduce unless there is strong evidence demonstrating inflation is falling. The US dollar index lost nearly 4% last week whilst GBPUSD reached its highest level since August 26 Late Friday. In the week ahead, there is potential for volatility in sterling on the back of crucial data releases in the UK, including labour market data for September/October, as well as CPI inflation for October. Additionally, the UK government’s Autumn statement on Thursday will be closely watched.”

Tim Hallinan – Trading Director

Main Headlines

President Joe Biden finally sat down with President Xi Jinping in Bali today for a discussion meant to ensure competitive rivalry does not become ‘anything near conflict.’ His advisors said there were hopes the meeting might at least produce a ‘floor’ for the fraught relationship between the two global powers. Their talk comes amid a brutal war in Ukraine, tensions across the Taiwan strait, and global fears over North Korea’s repeated missile tests. His Chinese counterpart said he was prepared for a ‘candid and in-depth exchange of views.’

Jeremy Hunt has said everyone will need to pay “a bit more tax” after Thursday’s budget as he warned “sacrifices” are required across the board to get the economy back on track. However, the Chancellor insisted it was “not just going to be bad news”, stressing he is keen to show the British people “the way through” the “difficult” circumstances at hand. Mr Hunt has declared he will be playing scrooge as he sets out his vision to restore financial “stability”, with a focus on delivering “certainty” to families and businesses in the wake of the market turmoil sparked by his predecessor’s £45 billion tax-cutting bonanza.

GBP

Sterling is weaker than most major currencies in the early morning trade. Pound Sterling will take direction this week from several key domestic data releases as well as Thursday’s Autumn Statement, where the government will spell out just how severe the spending cuts and tax hikes planned for coming years will be. Investors are particularly concerned about the UK’s economic outlook. This theme could persist over the coming days if key data releases disappoint and the UK government imposes a stinging fiscal austerity in order to try and convince investors the UK’s books will remain balanced.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. According to the European Commission, Belgium will have the largest budget deficit in the Eurozone over the next two years and would also be the only member of the Eurozone with debt above 100% of GDP to face a debt increase in 2023 and 2024. This situation is due to the country’s support measures to cope with rising energy costs and the automatic wage indexation mechanism. Economy Commissioner Paolo Gentiloni pinpointed the second element as bad for competition. However, the commissioner claims that now is not a good time to change this system.

USD

The dollar is well bid against most major currencies overnight. The US dollar steadied today amid fading expectations of a less aggressive Federal Reserve interest rate hike after Governor Christopher Waller said the central bank was not softening its fight against inflation. A modest miss on US inflation on Thursday put pressure on the dollar, which declined almost 4% in a week, marking its worst week in more than two and half years. But Waller said yesterday that the inflation print last week was “just one data point” and that other similar readings would be needed to show convincingly that inflation was slowing. Waller did add, however, that the Fed could now start thinking about hiking at a slower pace.

Markets

European stocks were cautiously higher this morning as investors assessed recent US inflation data alongside a warning from a top Federal Reserve official. The pan-European Stoxx 600 gained 0.2% in early trade, with telecoms adding 1.2% while travel and leisure stocks fell 0.9%. US stock futures traded lower early this morning despite the S&P 500 posting its biggest weekly gain in almost five months last week on the back of easing inflation data. Hong Kong’s Hang Seng popped as Japan’s benchmark index was dragged lower by tech giant SoftBank Group in a mixed Asia-Pacific session after closing the previous week with a big rally.

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

11:00 a.m. Euro-Area Sept. industrial production
11:00 a.m.: ECB’s Panetta speaks
2:00 p.m.: Poland Sept. current account, trade balance
5:15 p.m.: ECB’s Centeno speaks
5:15 p.m.: ECB’s de Guindos speaks
5:30 p.m.: Fed’s Brainard speaks
Bloomberg New Economy Forum in Singapore

Corporate Events

Hedge fund 13F filings
Earnings include Vantage Towers, Sonova, Talanx, Tyson Foods, Aecom

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