October 10, 2022

“Fed tightening course is still on track after better-than-expected US jobs report. US employers added 263,000 jobs (250,000 expected) in September and the unemployment rate edged down from 3.7% in August to 3.5%. Coming up this week, the latest US inflation data and Fed meeting minutes will help shape expectations into the November FOMC meeting.”

Sam Cornford, Partner – Head of Trading

Main Headlines

In granting pardons for federal marijuana possession convictions, President Joe Biden is taking a historic step that is likely to be widely popular and could energise core Democratic constituencies just over a month from the midterm elections. It would change the lives of thousands of Americans convicted of marijuana possession, especially if governors follow the President’s lead. But it also risks playing into searing Republican attacks branding Democrats as soft on crime, which are rocking multiple key contests ahead of elections that could hand control of the Senate and the House of Representatives to the Grand Old Party.

France has reassured the UK that it should be able to provide Britain with power at critical moments if its electricity supplies come under strain this winter, despite problems with nuclear reactors that have forced it to rely on imports. Grid operators in France and Great Britain have been in discussions about energy supplies in recent months, with authorities on both sides of the Channel signalling they will need imports to avoid power cuts this winter. British officials are also cautiously optimistic that flows between the two countries can continue. France’s electricity needs are generally greatest between 8am and 1pm rather than in the evening because of its large industrial base, UK officials said. This could mean flows switch directions at different times of the day to meet peak demand in both countries.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. The Bank of England has announced fresh measures to keep the UK’s financial markets functioning, following the turmoil which hit the pensions industry after last month’s mini-budget. In a statement this morning, the Bank says it will take three ‘additional measures’ to broaden its support, as it prepares to end its emergency backstop support on Friday. That emergency support saw the Bank promise to buy up £65bn of long-dated UK bonds – at up to £5bn per day. So far, it has only bought around £5bn, having calmed the market panic that saw bond prices slump. But with that support ending on Friday, the Bank is pledging to increase the maximum auction size, to up to £10bn per day.

EUR

Euro is weaker than most major currencies in the early morning trade. Berlin’s plan to establish a €200 billion emergency fund to subsidise lower gas prices triggered a furious response from some European leaders last week. Polish Prime Minister Mateusz Morawiecki even accused Scholz of “egotism” and of “destroying” the single market. The concern is that the German subsidies will give the country’s manufacturers an unfair advantage over industry in other EU countries. Scholz defended Berlin’s plans, saying other countries in Europe were pursuing similar steps. Though true, none of those programs comes anywhere near to matching the magnitude of the German proposal.

USD

The dollar is well bid against most major currencies overnight. US jobs growth slowed moderately in September while the unemployment rate dropped to 3.5%, pointing a tight labour market, which keeps Fed in its aggressive monetary policy tightening campaign for a while. Rising US interest rates increase the opportunity cost of holding the non-yielding gold, while boosting the dollar, in which the precious metal is priced. New York Federal Reserve President John Williams said on Friday the US central bank has more work to do to lower inflation and rebalance economic activity in a more sustainable way, and he warned that the unemployment rate will most likely rise as part of that process.

Markets

The pan-European Stoxx 600 fell 0.8% by mid-morning, heading for a fourth consecutive session of losses. Tech stocks dropped 1.7% while retail stocks bucked the downward trend to add 0.5%. US stock futures were lower in early premarket trade today, with Wall Street looking ahead to a key inflation print on Thursday and the beginning of corporate earnings season. Markets in Asia-Pacific also retreated overnight, with Hong Kong’s Hang Seng index leading losses as Chinese chip stocks listed in the city plunged following new export rules from the US.

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

8:00 a.m.: Norway Sept. CPI
8:00 am.: Denmark Sept. CPI
9:00 a.m.: Hungary Aug. Trade Balance
10:15 a.m.: ECB’s Centeno speaks
12:00 p.m.: Portugal Aug. Trade Balance
12:30 p.m.: ECB’s de Cos speaks
2:30 p.m.: Riksbank’s Ingves, Breman speak
2:30 p.m.: Ukraine Sept. CPI
3:00 p.m.: ECB’s Lane speaks
5:30 p.m.: Riksbank’s Ohlsson speaks
Annual meetings of IMF, World Bank kick off in Washington
Nobel Prize in Economics

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