October 13, 2022

“Federal Reserve officials have been said to have considered reducing the pace of rate hikes at their meeting yesterday, triggering a short-term surge on Wall Street. Meanwhile, Governor of the Bank of England, Andrew Bailey, has said that the bank will end emergency support for bonds from tomorrow.”

Tim Hallinan – Trading Director

Main Headlines

Joe Biden has warned that the US faces a “decisive decade” in its rivalry with China, as he unveiled a national security strategy that singled out Beijing as having the intent and capability to reshape the world order. In the first such document of his presidency, Biden wrote that his administration was “clear-eyed about the scope and seriousness” of the challenge that China and Russia posed to the international order. “China harbours the intention and, increasingly, the capacity to reshape the international order in favour of one that tilts the global playing field to its benefit,” Biden wrote in an introduction to the 48-page document.

Mortgage lenders took interest rates on home loans to new highs following turmoil on financial markets, deepening the affordability crunch facing borrowers and adding to gloom over the prospects for the housing market. Rates on two-year fixed rate mortgages hit 6.46 per cent on Wednesday, with five-year rates reaching 6.32 per cent, the highest level since the financial crisis, according to data provider Moneyfacts. Barclays raised rates on fixed-rate home loans by 0.8 percentage points yesterday; its 10-year fixed rate deal, for example, rose from 4.85 to 5.65 per cent for borrowers with a large deposit of 40 per cent or more.

GBP

Sterling is weaker than most major currencies in the early morning trade. Kwasi Kwarteng said the BOE will be responsible for addressing any market turmoil that might erupt when the bank ends its bond-buying program tomorrow. Executives have warned that the liquidity crisis engulfing the gilts markets has put at risk a government initiative to use pension funds to drive economic growth and the transition to a low-carbon economy. Rail passengers face the prospect of strikes continuing into the spring and new year, after the UK’s transport union asked its members to back continuing a nationwide campaign of industrial action for a further six months.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The European Union will unveil proposals next week to launch joint gas buying within months and develop an alternative gas price benchmark, but a meeting of EU countries yesterday left it unresolved whether the package would include a gas price cap. Germany’s consumer price, harmonised to compare with other European countries, were 10.9% higher year-on-year in September, the Federal Statistical Office said this morning, confirming preliminary figures.

USD

The dollar is well bid against most major currencies overnight. Federal Reserve officials signalled they are more concerned about doing too little to rein in soaring US inflation than doing too much and doubled down on plans to tighten monetary policy, so it constrains the economy, according to an account of their latest meeting. Joe Biden warned that Saudi Arabia would face “consequences” for defying Washington by announcing large cuts to oil production last week as he vowed to re-evaluate the US relationship with Riyadh in talks with Congress next month.

Markets

Equities extended declines as caution prevailed before awaited highly anticipated US inflation data later today. The dollar edged higher. European stocks fell for a seventh day in the longest losing streak since February 2018, with the Stoxx Europe 600 down 0.4%. US contracts fluctuated after a sixth consecutive decline for the S&P 500, which hit the lowest level since November 2020. Investors are on tenterhooks as they await consumer price figures that may determine if the Federal Reserve delivers a fourth-straight outsized hike in interest rates, piling more pressure on an already struggling world economy.

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

8:00 a.m.: Sweden Sept. CPI
8:00 a.m.: Germany Sept. final CPI
9:00 a.m.: Hungary sets one-week deposit rate
11:00 a.m.: Italy sells bonds
11:00 a.m.: Sweden sells linkers
2:00 p.m.: ECB’s Nagel speaks
2:30 p.m.: US Sept. CPI, weekly jobless claims
7:00 p.m.: Riksbank’s Breman speaks
Germany’s Aug. current account balance

Corporate Events

Earnings include Domino’s Pizza, Walgreens Boots, Delta Air Lines, BlackRock, Commercial Metals, Fastenal

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