November 4, 2022

“The bank of England raised interest rates by 75bps to a 14-year high of 3 per cent as expected, the biggest single interest rate hike since 1989. Following the announcement, the central bank warned the UK risks being plunged into the longest recession in 100 years. The sterling fell in response as more dovish rate guidance from the BoE and grim economic outlook weighted on the currency, registering a 1.5 percent decline yesterday against the euro and a 2.3 percent decline against the dollar. All eyes are on the US labour market report (October) today, which poses some event risks for the greenback.”

Sam Cornford, Partner – Head of Trading

 

Main Headlines

Elon Musk will begin mass layoffs at Twitter today, sharply reducing the social media platform’s workforce, the company said in an email to staff yesterday, one week after Elon Musk’s takeover. Those who are losing their jobs will receive a message to their personal email address, while employees staying on will get an email to their work account. The social network’s offices are temporarily closed globally, and workers will find out their fate by 4pm UK time. The layoffs come as Musk was speculated to cut as much as 50% of Twitter’s workforce. That could mean thousands of jobs lost, as the company had more than 7,000 employees at the end of 2021 according to a regulatory filing.

Britain’s National Grid this morning launched a scheme to pay homeowners and businesses to curb their electricity use when demand is high to help prevent blackouts over the winter. National Grid last month warned that Britain could face forced power cuts if it is unable to import enough electricity and gas this winter and said it would launch the initiative as part of its measures to prevent this from happening. Under the scheme, which will run until March 2023, homes with smart meters that have signed up will be sent emails or texts with time slots when they could be paid via money off their bills for reducing their electricity use. National Grid said homes responding to the alerts could save up to 100 pounds over the winter while businesses could potentially save even more.

 

GBP

Sterling is well bid against most major currencies overnight. The Bank of England has warned the UK is facing its longest recession since records began, as it raised interest rates by the most in 33 years. It warned the UK would face a “very challenging” two-year slump with unemployment nearly doubling by 2025. Bank boss Andrew Bailey warned of a “tough road ahead” for UK households, but said it had to act forcefully now or things “will be worse later on”. It lifted interest rates to 3% from 2.25%, the biggest jump since 1989. Food and energy prices have jumped, in part because of the Ukraine war, which has left many households facing hardship and started to drag on the economy. The Bank believes by raising interest rates it will make it more expensive to borrow and encourage people not to spend money, easing the pressure on prices in the process.

 

EUR

Euro is stronger against the dollar and weaker against sterling this morning. The European Central Bank will continue to focus on dampening demand and capping inflation expectations to prevent the current, fast price growth from taking hold in the euro area, the ECB’s vice-president Luis de Guindos said this morning. Growth in the euro area is estimated to have slowed down significantly in the third quarter of this year, with real GDP growing at 0.2%. High inflation continues to dampen spending and production throughout the economy. Severe disruptions in the supply of gas have worsened the situation further, and both consumer and business confidence have fallen rapidly.   Inflation continued to rise, reaching 10.7% in October, driven by further increases in all its main components. “Monetary policy must remain focused on reducing support for demand and guarding against the risk of a persistent upward shift in inflation expectations,” de Guindos told an event.

USD

The dollar is weaker than most major currencies in the early morning trade. Companies from ride-sharing platforms to mighty Amazon are either shedding jobs or putting their hiring plans on hold as the US economy slows. The National Association for Business Economics recently predicted that the US would enter a recession within the next 12 months. Despite the rising tech sector layoffs and economic challenges affecting millions of Americans, unemployment in the US remains near a five-decade low at 3.5%. Employers around the country posted 10.7 million job vacancies in September, up from 10.3 million in August. The government is set to release its October employment report today.

 

Markets

The pan-European Stoxx 600 index was up 1.1% by mid-morning, with basic resources jumping 4.5% to lead gains as almost all sectors and major bourses entered positive territory. The European blue chip index closed 1% lower on Thursday, with the UK’s FTSE 100 the outlier among major bourses, closing up 0.6% after the Bank of England implemented a 75 basis point hike to interest rates. US markets retreated yesterday amid jitters over the pace of rate hikes from the Fed. Stock futures were flat in early premarket trade this morning, as Wall Street looks ahead to the October nonfarm payrolls report for further clues on the health of the economy and the likely trajectory of monetary policy.

 

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

8:00 a.m.: Germany Sept. factory orders
8:45 a.m.: France Sept. industrial production
9:00 a.m.: Spain Sept. industrial production
9:15 a.m.: Spain Oct. services/composite PMIs
9:45 a.m.: Italy Oct. PMIs
9:50 a.m.: France Oct. PMIs
9:55 a.m.: Germany Oct. PMIs
10:00 a.m.: Euro-Area Oct. PMIs
10:15 a.m.: ECB’s de Guindos speaks
10:30 a.m.: UK Oct. construction PMI
10:30 a.m.: ECB’s Lagarde speaks
11:00 a.m.: Euro-Area Sept. PPI
1:15 p.m.: BOE’s Pill speaks
1:30 p.m.: US Oct. jobs report
UN publishes monthly food price index

Corporate Events

Earnings include Erste Group, Amadeus, Vonovia, Intesa Sanpaolo, Telefonica, Duke Energy, Dominion Energy, Enbridge, Consolidated Edison, Cheniere Energy, Cardinal Health, PPL, Icahn, AES, Evergy, Hershey, Blue Owl Capital, Liberty, CBOE, Brookfield Renewable

 

 

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