Novemeber 29, 2022

“EURUSD climbed to its highest level since June yesterday, supported by hawkish comments from ECB officials, which fuelled speculation of a 75 basis point interest rate hike in December. However, the dollar strengthened later in the day, on the back of the risk-averse backdrop, regaining all its losses against the euro. Later today, US Consumer Confidence data will be released as well as German inflation data. BoE’s Bailey is also speaking.”

Sam Cornford, Partner – Head of Trading

Main Headlines

New York Fed President John Williams said yesterday he sees signs inflation is starting to come down but says there is still more work to do for the Fed to reach its goal of 2% inflation. “Further tightening of monetary policy should help restore balance between demand and supply and bring inflation back to 2 percent over the next few years,” Williams added. Williams said he expects core goods prices to come down going forward, pointing to combination of slowing global demand, improving supply chains, and falling import prices from the strong dollar.

British Prime Minister Rishi Sunak said yesterday that the so-called “golden era” of relations with China was over, saying Beijing’s systemic challenge to Britain’s interests and values was growing more acute. Some in Sunak’s Conservative Party have been critical of Sunak, regarding him as less hawkish on China than his predecessor Liz Truss. Last year when he was finance minister, he called for a nuanced strategy on China to balance human rights concerns while expanding economic ties. However, a planned meeting between Sunak and China’s President Xi Jinping at this month’s G20 summit in Bali fell through and last week London banned Chinese-made security cameras from sensitive government buildings.

 

GBP

Sterling is well bid against most major currencies overnight. In England more than 600,000 properties face flooding in the future without investment in drainage, a report from the National Infrastructure Commission (NIC) has found. At the moment, 325,000 English properties have a 60% risk of flooding in the next decade, according to calculations by the NIC, due to a lack of investment in infrastructure. The report calls for stricter controls on building in flood-prone areas, as well as a £12bn investment in drainage over 30 years to bring our systems up to standard and stop lives being ruined by flooding.

 

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Euro zone inflation has not peaked and it risks turning out even higher than currently expected, European Central Bank President Christine Lagarde said yesterday, hinting at a series of interest rate hikes ahead. Her comments, along with remarks by Dutch central bank chief Klaas Knot earlier, were likely to dampen speculation that the ECB was about to take a gentler path with future rate increases. Inflation in the euro zone hit a record 10.6% on an annualised basis last month, but economists expect it to edge down to 10.4% in a flash reading for November due to be published this week.

 

USD

The dollar is weaker than most major currencies in the early morning trade. John Williams, President of the Federal Reserve Bank of New York has warned that the US unemployment rate could reach 5 percent next year as the central bank continues its battle against persistently high inflation. He said the central bank needs to do more to eliminate price pressures that have proven surprisingly persistent across a wide range of goods and services in the wake of the coronavirus pandemic. Williams said he expects the unemployment rate to rise from its current level of 3.7 percent to between 4.5 percent and 5 percent by the end of next year as the Fed takes more steps to tighten monetary policy through higher interest rates and a smaller balance sheet.

 

Markets

European markets were mixed this morning as investors continued to monitor news from China over Covid restrictions. The pan-European Stoxx 600 was flat by mid-morning, having given back earlier gains of more than 0.5%. Chemicals stocks fell 1.1% while basic resources added 2.4%. US stock futures were higher this morning after the major averages came under pressure from Covid protests in China, and as investors anticipated more economic data and commentary from Federal Reserve leaders this week. Dow Jones Industrial Average futures added 72 points, or 0.21%. S&P 500 and Nasdaq 100 futures climbed 0.35% and 0.51%, respectively.

 

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

7:00 a.m.: South Africa Oct. M3
8:00 a.m.: Sweden 3Q GDP, Oct. Retail Sales
8:00 a.m.: Turkey Oct. Trade Balance
9:00 a.m.: Switzerland 3Q GDP
9:00 a.m.: Sweden Oct. Economic Tendency Indicator
9:00 a.m.: Spain Nov. CPI
9:10 a.m.: ECB’s Guindos speaks
10:00 a.m.: Italy Sept. Industrial Sales
10:30 a.m.: UK Oct. Mortgage Approvals, M4
11:00 a.m.: Euro-area Nov. Economic Confidence
11:00 a.m.: Italy Oct. PPI
11:00 a.m.: Italy to sell bonds
1:35 p.m.: BOE’s Mann speaks
2:00 p.m.: Germany Nov. CPI
3:00 p.m.: ECB’s de Cos speaks
4:00 p.m.: SNB’s Schlegel speaks
4:00 p.m.: BOE’s Bailey testifies
NATO foreign ministers begin two days of meetings

 

Corporate Events

Earnings include Intuit, Bank of Nova Scotia, NetApp, Wise

 

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