October 19, 2022

“Sterling weakened after soaring food, transport and energy prices drove inflation back to double digits in September, matching the 40-year high of 10.1% reaches in July. Meanwhile, US industrial production for September printed ahead of expectations, where headline production rose by 0.4%.”

Tim Hallinan – Trading Director

Main Headlines

Joe Biden has ordered officials to prepare for more releases from the US Strategic Petroleum Reserve as he approved the sale of 15mn barrels of oil in December and established a plan to replenish the dwindling emergency stockpile. Officials said Biden would make the announcements today during a speech on his efforts to tame high petrol prices. After a sharp fall during the summer, prices at the pump have been edging up again in recent weeks. At just under $4 per gallon, prices are almost 60 per cent higher than when Biden took office in January 2021.

Confidence among small British business owners has fallen to its lowest level since the depths of the coronavirus pandemic as they are squeezed by rising costs and falling revenues. Their outlook has become increasingly pessimistic over the past three months over concerns that the economy was headed for a recession. A survey found that overall net confidence reached -35.9 in the three months to the end of September, down 11.2 points on to the previous quarter. Almost half reported that revenues had fallen in the third quarter, compared to less than a third reporting an increase.

GBP

Sterling is weaker than most major currencies in the early morning trade. Chancellor Jeremy Hunt is preparing to raid the profits of banks and energy companies in an attempt to fill a £40bn fiscal hole through a mix of tax rises and public spending cuts. Mortgage rates have reached their peak and could start to come down over the next few weeks following the UK government’s U-turn on much of its September “mini” Budget. Amazon is launching a portal for buying insurance in the UK, challenging established price comparison sites in the latest indication of Big Tech’s growing ambitions in financial services.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The European Central Bank is set to warn of the adverse impact on Spanish banks’ solvency of a proposed tax on the sector and of a higher cost of credit in an upcoming non-binding opinion. Qatar’s energy minister has warned that while Europe should have sufficient gas for power and heating this winter, the tougher challenge will come in 2023 as reserves are depleted. Saad al-Kaabi said the energy crisis could extend to the middle of the decade if Putin’s war in Ukraine continued and gas “does not start flowing back again” from Russia.

USD

The dollar is well bid against most major currencies overnight. The probability of the US economy slipping into a recession in the next 12 months has hit 100 percent, according to the new Bloomberg Economics model projections released on Monday. The forecast is a sharp jump from the 65 percent probability in the previous update. Kyiv was struck by so-called “kamikaze” drones on Monday, unleashed by Russia but believed to be Iranian made. The US says it agrees with Western allies that Iran’s supply of explosive drones to Russia violates UN sanctions. The US Transportation Department said it would allow Delta Air Lines and United Airlines to temporarily delay resuming flights to Cuba as they work to address logistical issues.

Markets

US equity futures and European stocks pared gains as traders assessed prospects for earnings growth against a backdrop of rising interest rates. The pound and gilts fell after UK inflation rose faster than economists expected. The Stoxx Europe 600 Index was up 0.1%, while contracts on the S&P 500 and the Nasdaq 100 pointed to a modestly higher opening on Wall Street after some solid results Tuesday from companies including Netflix Inc., which reported a surge in subscribers. An Asia Pacific share gauge fell, led by declines in technology shares in Hong Kong.

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

8:00 a.m.: UK Sept. CPI, PPI, Retail Price Index
9:00 a.m.: Austria Sept. CPI
10:30 a.m.: UK Aug. House Price Index
11:00 a.m.: Euro-area Sept. CPI
12:00 p.m.: EU to sell bills
12:30 p.m.: UK to sell bonds
3:00 p.m.: BOE’s Cunliffe testifies on financial services
4:00 p.m.: ECB’s Centeno speaks
4:00 p.m.: Riksbank’s Floden speaks
4:00 p.m.: BOE’s Cunliffe testifies to Treasury Committee
4:30 p.m.: EIA crude inventory report
5:00 p.m.: BOE’s Catherine Mann speaks
6:00 p.m.: Russia Sept. PPI, weekly CPI
Fed’s Charles Evans speaks
Sohn San Francisco Investment Conference

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