October 24, 2022

“The monetary policy announcement by ECB and BOJ this week will steal the spotlight. A second consecutive 75bps rate hike is largely expected by the European central bank this Thursday, which would result in a 1.5% increase in the Depo-rate and would entail some event risk for the euro. In the US, Q3 GDP and core-PCE inflation readings for September are due. A strong GDP growth and higher inflation reading should provide further support to the dollar.”

Sam Cornford, Partner – Head of Trading

 

Main Headlines

President Biden said yesterday that he hopes voters focus on his “energy level” and not his age if he decides to run for re-election in 2024. Biden, who will turn 80 next month, said last week it is his “intention” to run again in 2024, but he has not made a formal decision yet. He is the oldest president in history and would be 86 at the end of a second term. In a New York Times/Siena College poll published in July, roughly 64% of surveyed Democratic voters said they believe the party should nominate a different candidate for president in 2024. 33% listed Biden’s age as their primary reason, while 32% said it had to do with his job performance.

 

Rishi Sunak is expected to be confirmed as the new leader of the UK Conservative Party and British prime minister later today. It comes hours after Boris Johnson pulled out of the leadership race, after securing the public backing of 59 party MPs, far short of the 100 required to be included on the ballot. His withdrawal leaves the path open for Sunak, who has around 150 backers, a significant lead over rival Penny Mordaunt, who has 25. If both secure support from at least 100 MPs by this afternoon, Conservative Party members will have the chance to vote for their preferred candidate. However, if Mr Sunak is the only one to reach this threshold, he will automatically become the UK’s third prime minister this year.

 

GBP

Sterling is well bid against most major currencies overnight. The pound has gained on the dollar as Boris Johnson dropped out of the Tory leadership race, leaving Rishi Sunak as the favourite to become prime minister. This morning, sterling stood around 0.4% higher at $1.134. Meanwhile, government borrowing costs dropped as the markets opened after the weekend. Former chancellor Mr Sunak is now the only candidate backed by more than 100 Tory MPs, the level required to take part in the ballot of party members. Last month, sterling plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of outgoing Prime Minister Liz Truss’s mini-budget.

 

EUR

Euro is weaker than most major currencies in the early morning trade. Germany’s economic downturn deepened in October, the flash S&P Global composite purchasing managers’ index showed this morning as its reading fell to 44.1 from 45.7 in September, the lowest since May 2020, when the country was under a COVID lockdown. High energy costs were a major factor, especially in manufacturing, where the rate of contraction was at its fastest in two-and-a-half years, though manufacturing was also hit by weaker demand, S&P Global said. The flash manufacturing PMI fell to 45.7 from 47.8 the month before.

 

USD

The dollar is stronger against euro and weaker against sterling this morning. Brian Deese, Joe Biden’s top economic adviser said the US economy had the “strength and resilience” to shield it from a recession, brushing off growing concerns that steep interest rate increases designed to fight inflation would quash the expansion. Nearly every CEO expects a recession to the hit the US in the next 12 to 18 months. Elon Musk and Jeff Bezos say it is already too late to avoid one. Amid such warnings, optimistic messages from the White House can be jarring. Last weekend, Biden told reporters, “Our economy is strong as hell.”

 

Markets

European markets opened higher this morning, with UK politics expected to settle as the ruling Conservative Party picks a new prime minister following the resignation of Liz Truss last week. The Stoxx 600 was up 1.3% in early deals. All sectors and major bourses opened higher, with chemicals leading gains with a rise of 1.6%. Food and beverages and health care were both up more than 1.2%. In the US, stock futures were little changed this morning after all three major averages notched their best week since June at Friday’s close. Shares in the Asia-Pacific were mixed, but Hong Kong’s Hang Seng index plunged about 6%, with the Hang Seng Tech index down more than 8%.

 

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

7:00 a.m.: Finland Sept. S&P PMIs
9:15 a.m.: France Oct. PPI
9:30 a.m.: Germany S&P/BME PMIs
10:00 a.m.: Euro-area Sept. PMIs
10:30 a.m.: UK Oct. S&P/CIPS PMIs
11:30 a.m.: EU to sell bonds
2:50 p.m.: France to sell bills
Liverpool dockworkers begin a strike

 

 

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