October 18, 2022

“UK Chancellor Jeremy hunt unveiled a new set of fiscal policy U-turns to restore the government’s credibility and calm market concerns. The move provided further support for the pound and there is a further softening in UK rate hike expectations, which is now anticipated to be closer to 5 per cent.”

Tim Hallinan – Trading Director

Main Headlines

The US Atlantic coast has become a breeding ground for super-charged hurricanes which are likely to batter coastal communities even harder if the world remains hooked on fossil fuels, a new study found. Global heating caused by greenhouse gas emissions from burning oil, gas and coal is the main factor contributing to increasingly severe storms and flooding affecting the American east coast over the past four decades. Last month, Hurricane Ian killed at least 126 people and caused widespread flooding and infrastructure damage in Florida after transforming from a tropical storm to a category 4 hurricane within 24 hours.

Jeremy Hunt has shredded Liz Truss’s economic plans in one of the most astonishing U-turns in modern political history, including slashing the energy price freeze which the prime minister had repeatedly championed. The new chancellor dismantled almost all of the platform that Truss’s leadership victory had been built on, including the majority of her tax cuts, and hinted a new windfall tax was in his sights, a move the PM had previously said she would not countenance. Hunt will use his next fiscal statement, due on 31 October, to outline how the government intends to reduce public sector debt as a share of national income over time. Estimates of what it would take to achieve this range between £60bn and £72bn.

GBP

Sterling is weaker than most major currencies in the early morning trade. The Bank of England is likely to further delay the start of its sales of billions of pounds of government bonds to help stabilise government bond markets after Britain’s failed “mini budget”. Amid turmoil in financial markets, the BoE last month announced an emergency programme to start buying gilts again and it pushed back the start of its scheme to sell some of its 838 billion pounds ($954.90 billion) of government bond holdings until Oct. 31 from an original start date of Oct. 6. The pound briefly rose against the US dollar on the report but was down 0.2% at $1.1338. UK Gilt prices rose after his announcement and were mostly flat in early trade this morning. British Chancellor Jeremy Hunt is due to announce a medium-term budget plan on Oct. 31, the same day that the BoE has said it will start selling bonds.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The European Commission is set to propose another set of emergency measures today to tackle high energy prices, but draft proposals suggest they will not include an immediate cap on gas prices as EU countries remain split over the idea. The package is the European Union’s latest effort to address the spike in energy prices and fuel supply crunch that have gripped Europe after Russia cut gas flows since invading Ukraine. The EU package is unlikely to placate all 27 EU countries, whose leaders will discuss the proposals at a summit on Oct. 20-21. Most EU countries have urged the Commission to urgently propose a gas price cap, but disagree on its design.

USD

The dollar is well bid against most major currencies overnight. The US Department of Education has launched its official application for student loan forgiveness, meaning tens of millions of Americans can now request the financial relief. The launch follows a short beta test, during which time the Department of Education offered on and off access to the form while it tested the site. Borrowers could apply for forgiveness in those windows when the portal was open. More than 8 million people applied for relief over the weekend, after President Joe Biden announced on Monday during a speech at the White House. Biden in August detailed his plan to cancel $10,000 for borrowers making $125,000, or $250,000 for married couples, and $20,000 for those who also received federal Pell Grants, tuition-assistance available to students from low, and middle-income families.

Markets

European stock markets traded higher this morning, with the abrupt reversal in the UK government’s fiscal plans helping boost sentiment after weeks of turmoil. the DAX in Germany traded 1.2% higher, the CAC 40 in France rose 1.1%, and UK’s FTSE 100 climbed 1.1%. The Dow Jones Industrial Average added 550.99 points, or 1.86%, to close at 30,185.82. The S&P 500 popped 2.65% to 3,677.95. The tech heavy Nasdaq Composite jumped 3.43% for its best day since July, finishing at 10,675.80. Shares in the Asia-Pacific traded higher this morning after Wall Street’s rally overnight.

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

8:00 a.m.: EU Sept. car registrations
10:00 a.m.: Italy Aug. Trade Balance
10:00 a.m.: Spain Aug. Trade Balance
11:00 a.m.: Germany Oct. ZEW Survey
11:00 a.m.: UK to sell bonds
11:00 a.m.: Austria to sell bills
11:30 a.m.: Germany to sell bonds
1:30 p.m.: Turkey Aug. House Price Index
3:40 p.m.: Riksbank’s Jansson speaks
3:40 p.m.: ECB’s Makhlouf speaks
6:00 p.m.: ECB’s Schnabel speaks

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