October 26, 2022

“USD is currently on the back foot after a slew of US data on manufacturing, home prices and consumer confidence have fallen short of economists’ expectations. EURUSD advanced past parity as bets have soared for another aggressive rate hike by the ECB and supported by falling gas prices in eurozone. Sterling has been retaining a firmer tone since the new UK PM Rishi Sunak took office. All eyes are on the ECB meeting and US GDP data tomorrow.”

Sam Cornford, Partner – Head of Trading

 

Main Headlines

Lt. Gov. John Fetterman of Pennsylvania and Mehmet Oz, the celebrity television doctor, collided yesterday in one of the most closely watched debates of the midterm campaign. The Pennsylvania Senate matchup was both highly personal and unusual, as viewers watched Mr. Fetterman, a Democrat, rely on closed captioning to accommodate for the lingering effects of a stroke he had in May. The debate could prove to be a decisive moment in a race that represents the best chance for Democrats to flip a Republican-held Senate seat this year. The most recent poll shows Mr Fetterman with just a two-point lead.

Britain’s new Prime Minister, Rishi Sunak, faces a daunting task to turnaround the country’s ailing economy. He insists he can but has provided few details. He warned yesterday of “difficult decisions” to come as the country faces a “profound economic crisis”. He stressed he would bring a different approach to government than his predecessors Truss and Boris Johnson, who resigned in July with allegations of misbehaviour hanging over his head. Sunak said he would foster an environment that valued “integrity, professionalism and accountability”. Financial markets responded positively to Sunak’s first full day in office. The pound currency, in free fall for weeks, added value against the dollar. The cost of buying British government gilts also dropped.

 

GBP

Sterling is well bid against most major currencies overnight. The Pound has reversed all of its post-budget losses, but some strategists say it could be likely to unravel again before year-end and have advocated that clients sell Sterling against the Dollar following any recovery back above 1.15, citing scope for it to fall as far back as 1.08 again in the months ahead. Sterling rose against many currencies during the opening half of the week after the Conservative Party leadership selection process was resolved with a parliamentary coronation of former Chancellor Rishi Sunak as Prime Minister and as risk appetite appeared to improve on international markets.

 

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Europe’s gas prices have fallen below €100 per megawatt-hour for the first time since mid-June, as mild autumn weather tame demand and storage facilities reach near-total capacity. While prices remain exceptionally high, the news offers some relief for consumers under financial stress. The EU’s average storage capacity is now at 93%, which means governments do not need to buy as much backup gas as they did in previous months. At the same time, industrial production and consumer consumption are being constrained by high energy bills, leading to a dip in demand and a consequent fall in prices. It’s unclear how long the drop in gas prices will last. EU officials fear a colder-than-usual winter will stoke demand for electricity and heating, push prices to unsustainable highs and aggravate the economic recession.

 

USD

The dollar is weaker than most major currencies in the early morning trade. The dollar wallowed near a three-week low versus major peers today as more signs of economic weakness in the United States fanned speculation about a less hawkish Federal Reserve. The dollar index, which measures the currency against six peers, including sterling, the euro and the yen, was little changed at 111.01, near the previous session’s trough of 110.75, the lowest level since Oct. 5. Data overnight showed that US home prices sank in August as surging mortgage rates sapped demand, amid recent signs that Fed rate increases are already working to slow the world’s biggest economy. Traders and economists predict another 75 basis point increase next Wednesday, but the view is growing for a slowing to half a point in December.

 

Markets

The pan-European Stoxx 600 was up 0.2% by mid-morning, having recouped earlier losses of around 0.4%. Construction and material stocks added 1.4% while food and beverage stocks dropped 1.4%. The European blue chip index ended yesterday’s session up 1.4%, hitting its highest level since Sept. 19. US stocks rallied yesterday for a third straight day as soft economic data indicated the Fed may not need to be so aggressive with rate hikes, though stock futures were lower this morning after Alphabet earnings disappointed. S&P 500 closed 8% above Oct.12 closing trough. A slew of US companies will report today, including Meta, Coca Cola and McDonalds, and data is due on weekly mortgage applications, wholesale inventories and new home sales.

 

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

8:00 a.m.: Sweden Sept. Trade Balance
8:45 a.m.: France Oct. Consumer Confidence
10:00 a.m.: Eurozone Sept. M3 Money Supply
2:00 p.m.: South African Medium Term Budget Policy Statement
6:00 p.m.: Russia Sept. Industrial Production
6:00 p.m.: Russia CPI Weekly

Corporate Events

Earnings include Mercedes-Benz, Iberdrola, Heineken, Banco Santander, BASF, Norilsk Nickel, Barclays, Unicredit, Boeing, Meta, Twitter

 

 

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