November 16, 2022

“Sterling fell against the euro and other major currencies after hotter-than-expected UK inflation data this morning, the highest in more than 40 years. Data came in at 11.1% year-on-year in October as it accelerated past September’s 10.1% and well ahead of the consensus estimate for 10.7%. On the calendar today, US retail sales and industrial production releases for October are due. Additionally, BoE Governor Bailey’s comments before the Treasury Select Committee will be closely watched.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Donald Trump last night announced his candidacy for the Republican presidential nomination in 2024, likely sparking another period of tumult in US politics and especially his own political party.  “In order to make America great and glorious again, I am tonight announcing my candidacy for president of the United States,” Trump said from ballroom of his private Mar-a-Lago Club in Palm Beach, Florida, where he stood on a stage crowded with American flags and Make America Great Again banners. Vowing to defeat Joe Biden in 2024, he declared: “America’s golden age is just ahead.”

Rishi Sunak will hold a surprise meeting with Xi Jinping at the G20 summit in Indonesia today to try to construct a new “frank and constructive” UK-China relationship. He is moving away from the more overtly hostile approach taken by his predecessor, Liz Truss, and is recognising the need to engage with Beijing. Downing Street said Sunak would be “clear-eyed” about Britain’s relations with China, but throughout his time as the UK’s chancellor, he viewed foreign policy through a primarily economic lens.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. The UK’s annual inflation rate hit a 41-year-high of 11.1% last month even as help was provided to households by the introduction of the government’s energy price guarantee. Dearer food also contributed to a 2% jump in prices in October alone, helping to push the increase in the cost of living over the previous 12 months to a level not seen since October 1981. Meanwhile the pound has slipped back, even as the Bank of England is expected to continuing raising interest rates for the foreseeable future. The market views higher inflation as a negative, as surging prices and interest rates would devour the UK’s economic growth potential.

EUR

Euro is well bid against most major currencies overnight. EU countries are planning to increase their defence expenditure by €70 billion by 2025 in order to fill existing capability gaps, according to the EU’s foreign policy chief. Speaking in Brussels at a meeting of the bloc’s defence ministers, Josep Borrell also said the European Commission is pushing to procure weapons jointly across the EU, similar to the model used to obtain vaccines during the pandemic. Some analysts argue that a dash for new weapons without a set of rules risks making a highly fragmented market even more disjointed.

USD

The dollar is weaker than most major currencies in the early morning trade. The Producer Price Index (PPI) for final demand in the US declined to 8% on a yearly basis in October from 8.4% in September, the data published by the US Bureau of Labour Statistics revealed yesterday. This print came in lower than the market expectation of 8.3%. The annual Core PPI edged lower to 6.7% from 7.2% in the same period, compared to analysts’ estimate of 7.2%. On a monthly basis, the Core PPI was unchanged. The US Dollar remained under heavy selling pressure after the PPI data, as it lost 1% on the day.

Markets

European markets were mostly lower this morning as political instability gripped the region after a missile hit Polish territory, raising tensions between Russia and NATO. The pan-European Stoxx 600 slipped 0.3% below the flatline in early trade, with autos shedding 2% while oil and gas stocks added 0.8%. US stock futures rose in early premarket trading as investors weighed another lighter-than-expected inflation report and looked ahead to US retail sales data due out today. Shares in the Asia-Pacific were mostly lower this morning as world leaders gathered in Bali, Indonesia, for a second day of the Group of 20 summit.

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

8:00 a.m.: UK Oct. CPI
9:00 a.m.: Czech Republic PPI
10:00 a.m.: ECB Financial Stability Review
10:00 a.m.: ECB’s Muller speaks
10:00 a.m.: Italy Oct. CPI
10:30 a.m.: UK Sept. House Price Index
10:40 a.m.: ECB’s Centeno speaks
11:00 a.m.: ECB’s Visco speaks
1:45 p.m.: ECB’s Villeroy speaks
2:00 p.m.: Poland Oct. CPI
2:30 p.m.: US Oct. Retail Sales
3:15 p.m.: US Oct. Industrial Production
3:15 p.m.: BOE’s Bailey testifies to parliament
4:00 p.m.: ECB’s Panetta speaks
5:00 p.m.: Russia 3Q GDP
6:00 p.m.: ECB’s Lagarde speaks

Corporate Events

Earnings include Gazprom Neft

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