October 28, 2022

“The ECB raised interest rates by 75bps points as expected yesterday, however, the euro fell sharply as the central bank vowed to continue its money printing programme until the end of 2024 despite surging inflation. EURUSD has retreated below parity. Market awaits the key growth and inflation data from Germany today. US PCE inflation data is also eyed, which is forecasted to rise to 5.2% from 4.9% in September.”

Sam Cornford, Partner – Head of Trading

Main Headlines

With less than two weeks until midterm election, President Joe Biden is doubling down on the message that a Republican-run Congress would be worse for the US economy. The economy is top of mind for voters heading into Election Day, and polls show Americans trust Republicans to handle the issue more than they do Democrats. GOP candidates have seized on inflation in their midterms messaging, blaming higher costs on Democratic policies. The White House, in an aggressive push to counter that message, sent out a document to reporters and held a conference call on Wednesday outlining what it is calling “congressional Republicans’ five-party plan to increase inflation and costs for American families.”

British universities and business leaders have written to the government urging it to recommit investing £20bn a year in research and development to safeguard Britain’s economic growth after Prime Minister Rishi Sunak was warned of “difficult decisions” ahead of the autumn declaration warned next month. The UK universities representing the sector, along with technology group Siemens and Gatwick Airport, were among more than 100 business organisations, education leaders and individual researchers who have written to Chancellor Jeremy Hunt urging him to protect R&D funding. The letter, presented to the Financial Times, warned that a failure to invest in innovation would result in lower productivity across the UK in the long term.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK house prices will fall by 8% next year and then almost stagnate for the following four years, Lloyds Banking Group has predicted. he UK’s biggest mortgage lender, which runs the Halifax brand, gave a gloomy outlook for the UK economy. It has set aside £668m to cover bad debts as rising interest rates make loans and mortgages less affordable. It has set aside £668m to cover bad debts as rising interest rates make loans and mortgages less affordable. That was a 25% drop on the same period last year. An 8% drop in house prices, if it happens, risks putting some recent buyers into negative equity, especially if prices fail to recover for some time.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The euro tumbled below parity against the dollar on Thursday night after the European Central Bank vowed to continue its money printing programme despite surging inflation. The ECB increased interest rates by 0.75pc in an effort to limit sharply rising prices, with inflation hitting 9.9pc across the eurozone last month. But it also said that it would continue the quantitative easing (QE) programme where new money is created to buy bonds. The euro dropped around 1pc against the dollar to lows of $0.9976 on fears that inflation will remain higher for longer, with the rise in interest rates serving to make a looming recession worse.

USD

The dollar is well bid against most major currencies overnight. US economic growth rebounded during the third quarter after six months of steady declines, according to data released yesterday by the Commerce Department. US gross domestic product grew at an annualized rate of 2.6 percent between July and September, up from declines of 1.6 percent in the second quarter and 0.6 percent in the third quarter of 2022. That means that if the third quarter’s pace of growth lasted 12 months, the US economy would have grown 2.6 percent by the end of that time. Economists expected US GDP to rise at an annualized rate of 2.3 percent in the third quarter, according to consensus estimates. Yet even though the growth numbers suggest an economy growing relatively strong, there were warnings signs within the report about a slowdown.

Markets

European markets are lower this morning as investors continue to digest the European Central Bank’s decision to raise its interest rate by 75 basis points alongside a raft of corporate earnings releases. The Stoxx 600 was down 0.8% early morning. The S&P 500 closed down 0.6%, ending the session at 3,807.30. Nasdaq 100 futures were lower today after disappointing Amazon earnings added to the already pressured index. Companies including Shell and Apple saw profits exceed expectations, while Meta, Heineken and Samsung reported slowdowns. The Dow Jones Industrial Average closed higher yesterday after new data showed third-quarter GDP grew faster than expected and hinted at waning inflation, encouraging investors to buy stocks linked to the health of the economy.

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

7:00 a.m.: ECB’s Simkus speaks
7:30 a.m.: France 3Q GDP
8:00 a.m.: Sweden Sept. Retail Sales
8:45 a.m.: France Oct. CPI
9:00 a.m.: Austria 3Q GDP, Sept. PPI
9:00 a.m.: Spain 3Q GDP, Oct. CPI
10:00 a.m.: ECB Survey of Professional Forecasters
10:00 a.m.: Norway wealth fund publishes 3Q results
10:00 a.m.: Germany 3Q GDP
10:30 a.m.: Portugal Oct. CPI
11:00 a.m.: Belgium 3Q GDP
11:00 a.m.: Italy Oct. CPI
11:00 a.m.: Eurozone Oct. Consumer Confidence
12:30 p.m.: Russia Rate Decision
2:00 p.m.: Germany Oct. CPI

Corporate Events

Earnings include Equinor, Sanofi, Airbus, Volkswagen, Eni, Caixabank, Natwest, Swiss Re, Danske Bank

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