October 12, 2022

“The UK is in the spotlight today. Sterling’s sensitivity to news about UK gilts has continued overnight. The currency received some support this morning following reports the BoE may consider extending the deadline for its emergency bond buying. However, the pound faced some new pressure after GDP data for August showed the UK economy shrank by 0.3%. Also today, the minutes from the Fed meeting will be released.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Joe Biden warned yesterday that Saudi Arabia would face “consequences” after OPEC+ last week announced the biggest cut in oil production since the start of the coronavirus pandemic. Senior Democrats on Capitol Hill have condemned the decision by Saudi Arabia, the de facto leader of the oil-producing alliance, to reduce the global supply of petroleum. Higher oil prices are seen as helping Russia, the world’s second-largest oil exporter, finance its war in Ukraine. The president indicated Congress will act when it is back in session after the midterm elections.

The Bank of England has signalled privately to lenders that it was prepared to extend its emergency bond-buying programme beyond Friday’s deadline if market conditions demanded it. Today’s report comes a day after the BoE’s governor, Andrew Bailey, said he had no intention of extending purchases of bonds beyond the deadline. Sterling bounced 0.4% to $1.1008 after the report and was last up 0.28%. The central bank has made numerous attempts over the past two weeks to try and restore order in markets, after the surge in yields last month threatened to overwhelm pension schemes that had loaded up on leveraged derivatives.

GBP

Sterling is weaker than most major currencies in the early morning trade. Britain’s economy shrank by 0.3% in August from July, hit by weakness in manufacturing and by maintenance work that slowed the oil and gas sector, official data showed. Giving a strong signal that the UK is entering a recession, the Office for National Statistics said manufacturing declined by 1.6% while the cost of living crisis appeared to hit hotels, restaurants and the leisure industry. The decline in national income (GDP) was also 0.3% over the three months to August, indicating that an increase of 0.1% in July was a blip and mostly caused by a modest rebound from the Queen’s platinum jubilee celebrations.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The German government stressed yesterday that it is not willing to discuss fresh EU debt via loans “at present”, but it left the door open to potentially endorsing such a plan later. in response to widespread criticism of Germany’s €200 billion gas price relief package, the chancellor had indicated that EU loans could be an option to support partner countries that might struggle to set up similar support measures for their economies. Such a solidarity mechanism could be based on the SURE program that the EU set up as a first response to the coronavirus crisis in 2020 and which is based on loans that are underpinned by a system of voluntary guarantees from EU countries.

USD

The dollar is well bid against most major currencies overnight. Realtors, mortgage brokers, and appraisers throughout the US are bracing for widespread job cuts as house gross sales plummet amid rising rates of interest. For those that work in and across the housing market, the impact of aggressive strikes by the Federal Reserve to cut back inflation has been swift and extreme. Realtors, mortgage brokers, appraisers, and building teams say they’ve misplaced as a lot as 80 per cent of their income because the Fed began elevating charges in March. Rates for a 30-year fastened mortgage, at 6.66 per cent, have practically doubled since and at the moment are at their highest degree since 2008.

Markets

European shares slipped at the open today as investors monitored the continuing turmoil in the UK bond market caused by the ill-received government plan for unfunded tax cuts. The pan-European Stoxx 600 index was down 0.78% in early deals with most regional markets lower. UK’s FTSE 100 bucked the trend, rising 0.04% despite official data showing the economy unexpectedly shrank in August. The Nasdaq and S&P 500 hit fresh bear market lows yesterday. The Dow Jones led an intraday rally, but the major indexes faded to mostly negative by the close. Chip stocks continue to sell off in the wake of weak demand and US controls on China sales.

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

8:00 a.m.: UK Aug. monthly GDP, industrial production, trade balance
9:00 a.m.: Turkey Aug. industrial production
10:00 a.m.: BOE’s Haskel speaks
11:00 a.m.: Euro-Area Aug. industrial production
1:35 p.m.: BOE’s Pill speaks
2:30 p.m.: US Sept. PPI final demand
3:30 p.m.: ECB’s Lagarde speaks
5:00 p.m.: ECB’s Knot speaks
7:00 p.m.: BOE’s Mann speaks
8:00 p.m.: US Fed minutes from Sept. 21 meeting
IMF publishes Fiscal Monitor report
OPEC publishes monthly oil market report
EU energy ministers meet in Prague
Ukraine Defense Contact Group meets in Brussels

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