September 28, 2022

“The greenback remains king on the exchanges amid the risk averse. Pressure on sterling continues, despite BoE Chief Economist call for a significant monetary policy response. Focusing on the coming day, the pound will remain to be the prominent currency as the BoE’s assessment of recent developments continues. Comments from several Fed officials and ECB President Lagarde will also be closely scrutinised.”

Sam Cornford, Partner – Head of Trading

Main Headlines

NASA’s DART mission hits asteroid in first-ever planetary defence test. After 10 months flying in space, NASA’s Double Asteroid Redirection Test (DART), the world’s first planetary defence technology demonstration, successfully impacted its asteroid target on Monday, the agency’s first attempt to move an asteroid in space. Meanwhile, Florida residents rushed to board up their homes, stash precious belongings on upper floors and flee from oncoming Hurricane Ian, fearing the monstrous storm that knocked out power to all of Cuba and left 11 million people without power would slam into their state’s west coast with catastrophic winds and flooding today.

The International Monetary Fund (IMF) has launched a stinging attack on the UK’s tax-cutting plans and called on Liz Truss’s government to reconsider them to prevent stoking inequality. In rare public criticism of a leading global economy, the Washington-based fund said Kwasi Kwarteng’s mini-budget risked undermining the efforts of the Bank of England to tackle rampant inflation amid the cost-of-living emergency. The intervention from the IMF is rare given the influence of the UK in the global economy, and as one of the organisation’s largest shareholders. Meanwhile, a top Fed official warned that the UK government’s new fiscal plan has increased economic uncertainty and raised the odds of a global recession.

GBP

Sterling is weaker than most major currencies in the early morning trade. The pound has fallen again after both the International Monetary Fund and Moody’s made shock interventions over the Government’s tax-slashing Budget. Sterling dropped back below $1.07 in Asia trading, reversing some of its recovery after the currency slumped to an all-time low against the dollar at the beginning of the week. Investor jitters were reignited when the IMF urged Prime Minister Liz Truss to reverse the decision to scrap the top rate of income tax. In a highly unusual intervention in a developed country’s economic policy, the body said it was closely monitoring developments and warned the fiscal stimulus risked undermining the Bank of England’s efforts to curb inflation.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. European natural gas prices rose yesterday, after news of leakage from both strands of the Nord Stream pipeline under the Baltic Sea dashed any faint hopes of a resumption of more normal levels of imports from Russia over the coming winter. The movement came after Sweden’s Maritime Authority warned of more leaks on the Nord Stream pipelines that run from Russia under the Baltic Sea to Germany. Leaks on undersea gas pipelines are extremely rare, and the discovery of three in close proximity to each other within 24 hours raised suspicions of sabotage, bolstering Russia’s campaign of economic pressure on Europe to drop its support for Ukraine. Today, The EU rushed to ramp up security safeguarding the bloc’s energy infrastructure in response to what it called acts of sabotage on the Nord Stream pipelines, while warning of a “robust and united response” should there be more attacks.

USD

The dollar is well bid against most major currencies overnight. The dollar made little progress in a choppy session yesterday while appetites for riskier bets were still weak as Federal Reserve policymakers talked about more interest rate hikes. The greenback was up against the euro but losing ground against the British pound and Japan’s yen with all eyes on central banks and the impact on economic growth from their efforts to tame inflation. Minneapolis Federal Reserve Bank President Neel Kashkari said yesterday that the Fed needs to keep tightening until it has evidence underlying inflation is heading down, then should pause and “let the tightening work its way through the economy” to see if it has done enough.

Markets

The Euro Stoxx 50 fell by 0.4%, while the S&P 500 declined by 0.2%. On bond markets, benchmark sovereign yields continued to ratchet higher. US Treasury and German Bund yields bear steepened by 1-17bps along the curve, respectively. Meanwhile, the sell-off in UK Gilts remained more pronounced, with UK yields rising by a further 10-40bps. The 10-year Gilt is now at 4.5%, up from around 1% at the start of the year, and 2.8% at the beginning of the month.

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

8:00 a.m.: Sweden Aug. retail sales
8:00 a.m.: Riksbank’s Jansson speaks
8:45 a.m.: France Sept. consumer confidence
9:00 a.m.: Sweden Sept. consumer confidence
9:15 a.m.: ECB’s Lagarde speaks
10:00 a.m.: Italy Sept. consumer, manufacturing confidence
10:00 a.m.: ECB’s Kazimir speaks
10:15 a.m.: BOE’s Cunliffe speaks
10:30 a.m.: ECB’s Holzmann speaks
11:00 a.m.: Italy, Sweden sell bills
4:30 p.m.: EIA US crude supply report
5:00 p.m.: ECB’s Elderson speaks
8:00 p.m.: BOE’s Dhingra speaks

Corporate Events

Earnings include Paychex, Jefferies, Thor Industries, Cintas, Enerpac Tool

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