October 11 , 2022

“The mood is fragile this morning with investors bracing ahead of Thursday’s US inflation data, where another 75bps rate hike is widely expected. The Federal Reserve continues to show little inclination to pause the rate-hiking cycle despite the potential downturn hit to the economy.”

Tim Hallinan – Trading Director

Main Headlines

The top Democrat on the Senate Foreign Relations Committee is calling on the Biden administration to “immediately freeze” US cooperation with Saudi Arabia after OPEC+ announced it would reduce daily oil production. Senator Bob Menendez of New Jersey condemned the move by Saudi Arabia, the de facto leader of the oil-producing alliance arguing it would serve to “underwrite” Russian President Vladimir Putin’s war in Ukraine. OPEC+ last week announced the largest cut in production since the start of the coronavirus pandemic, frustrating the Biden administration and its Western allies.

The Bank of England has widened its emergency bond-buying programme to include inflation-linked gilts in its latest attempt to stem “fire sales” by pension funds. The central bank said it was prepared to buy up to £5bn a day in index-linked UK government bonds as it warned of “dysfunction” in the gilt market. The latest measures come just a day after the BoE launched a new short-term funding programme that it hoped would act as a pressure release valve for pension schemes that have been caught up in a vicious circle after chancellor Kwasi Kwarteng’s September 23 “mini” Budget set off a historic sell-off in gilts.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK unemployment hit a fresh multi-decade low in the three months to August as long-term sickness kept more older workers out of the labour market. Up to £20bn of investment in renewable energy is under threat from Liz Truss’s plans to effectively ban solar farms on agricultural land in England, the industry has warned. Chancellor Kwasi Kwarteng is to rush forward his new debt-cutting plan to October 31, as he attempts to prove he can get a grip on the public finances and fill in a fiscal hole estimated at tens of billions of pounds.

EUR

Euro is well bid against most major currencies overnight. Poland is on track to unblock billions of euros of EU recovery funds before the end of the year, insisting that negotiators had made significant progress in talks with Brussels in the past month. Spanish energy company Cepsa and the Port of Rotterdam are working together to establish a green hydrogen corridor between southern and northern Europe. The partners plans will help the development of a green hydrogen supply chain between two of Europe’s main ports, Rotterdam, in the Netherlands, and Algeciras, in Spain.

USD

The dollar is stronger against sterling and weaker against euro this morning. Berkshire Hathaway, Tesla and CME Group are among more than two dozen S&P 500 companies that disclose no information about their political spending, according to an annual transparency report. Realtors, mortgage brokers, and appraisers across the US are bracing for widespread job cuts as home sales plummet amid rising interest rates. JPMorgan Chase chief executive Jamie Dimon predicted the American economy will tip into a recession next year, warning the downturn threatened to spark “panic” in credit markets and wipe an additional 20 per cent from the value of US stocks.

Markets

Stocks fell, pressured by rising Treasury yields and signs that company earnings were set to disappoint. European shares declined for a fifth straight session as bond yields jumped amid concerns of persistently high inflation as well as the impact of hawkish central bank policies on global growth. The Stoxx Europe 600 Index dropped 0.8%, with futures on the S&P 500 down by about the same magnitude, pointing to another risk-off day on Wall Street. Big US banks kick off the third-quarter earnings season in earnest later this week as strategists brace for weak profits against a drumbeat of warnings over the rising risk of a global recession.

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

8:00 a.m.: UK Aug. average weekly earnings, unemployment rate
9:00 a.m.: Czech Republic Sept. CPI
9:00 a.m.: Hungary Sept. CPI
9:00 a.m.: Turkey Aug. current account
10:00 a.m.: Italy Aug. industrial production
12:00 p.m.: US Sept NFIB Small Business Optimism
2:45 p.m.: ECB’s Lane speaks
8:00 p.m.: BOE’s Cunliffe speaks
8:35 p.m.: BOE’s Bailey speaks
IMF publishes World Economic Outlook and Global Financial Stability reports

Corporate Events

Meta hosts annual Meta Connect virtual conference
JPMorgan and Robin Hood holds investor conference in New York

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