October 27, 2022

“The ECB will raise interest rates by 75bps to the highest in more than a decade to tackle historic euro-zone surge in inflation. The pace, said to be fastest on record, is due to fears that rapid price growth is becoming entrenched, but is likely to slow down to 50bps in December.”

Tim Hallinan – Trading Director

Main Headlines

The US is exporting record volumes of oil and taking on a bigger role as a fuel supplier in response to the global energy crunch caused by Russia’s war in Ukraine. Combined US exports of crude oil and refined petroleum products surged to 11.4mn barrels a day last week. The shipments were almost 2mn b/d higher than the previous week and came despite oil companies facing pressure from Washington to send less fuel abroad and build domestic stocks as President Joe Biden’s administration tries to curb prices at the pump ahead of critical midterm elections.

UK chancellor Jeremy Hunt has delayed the date for his long-awaited debt-cutting plan from October 31 to November 17, as calmer markets gave the government some economic breathing space. Rishi Sunak, the new prime minister, has cleared the way for painful cuts and tax rises to plug a fiscal hole of between £30bn and £40bn, including the possibility of real-terms cuts in pensions and benefits. Hunt announced on Wednesday morning that he would hold a full Autumn Statement, including official forecasts, on November 17 and has warned of “eye-wateringly” difficult choices to come.

GBP

Sterling is weaker than most major currencies in the early morning trade. Rishi Sunak, the new British Prime Minister, has toned down his zeal for the speedy axing of EU legislation, amid warnings that such an exercise could tie up hundreds of civil servants at a time of national crisis. The proportion of UK workers on low pay has fallen to its lowest on record, even though living standards for the average employee have not improved since the 2008 financial crisis. UK mortgage lending is headed for its biggest plunge in more than a decade next year. Loans for house purchases may total just £11 billion, a fraction of the £63 billion expected for 2022.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. TotalEnergies posted a sharp jump in its third quarter net profit compared with a year ago, as it joined other energy giants in its sector to have benefited from higher oil and gas prices, although it also booked a new Russia-related impairment. German consumer morale is expected to recover slightly in November, though talk of a trend reversal is far too early at this point. Credit Suisse Group lost 4 billion Swiss francs in the third quarter, badly missing the average estimate of 413 million francs in a consensus compiled by the embattled Swiss bank which also unveiled its new strategy.

USD

The dollar is well bid against most major currencies overnight. The US economy is expected to have rebounded in the third quarter after contracting for the first six months of this year, adding to evidence that the world’s largest economy is not already in a recession but doing little to dispel fears it may yet tip into one. US officials have been forced to scale back a plan to impose a cap on Russian oil prices, following scepticism by investors and growing risk in financial markets brought on by crude volatility and central bank efforts to tame inflation.

Markets

Stocks slipped and US futures pared gains as traders digested a flurry of major earnings and prepared for another European Central Bank rate hike later Thursday. The Stoxx Europe 600 Index edged lower, with Credit Suisse Group AG sliding more than 7% as the bank reported its fourth straight loss. Contracts on the S&P 500 and the Nasdaq 100 advanced less than 0.2%. A gauge of Asian equities rose as a tech rally powered shares in Hong Kong. The Bank of Canada hiked by a smaller amount than expected yesterday, adding to suggestions that the Federal Reserve is also getting closer to shifting down in gears.

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

8:00 a.m.: Germany Nov. GfK Consumer Confidence
9:00 a.m.: Slovakia Sept PPI
9:00 a.m.: Turkey Sept. Trade Balance
10:00 a.m.: Italy Oct. Consumer, Manufacturing Confidence; Economic Sentiment
2:15 p.m.: ECB Rate Decision
2:30 p.m.: US 3Q GDP, Sept. Durable Goods, Initial Jobless Claims
2:45 p.m.: ECB’s Lagarde speaks
3:00 p.m.: Russia Gold and FX Reserve
4:30 p.m.: Riksbank’s Jansson speaks
5:30 p.m.: BOE’s Sam Woods speaks
5:55 p.m.: ECB’s Villeroy speaks
Germany Chancellor Olaf Scholz holds talks with Greek PM Kyriakos Mitsotakis

Corporate Events

Earnings include Shell, Linde, TotalEnergies, Novatek, ESF, Lloyds, Apple, Amazon, Mastercard

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.