October 4, 2022

“European and Asian stocks rallied this morning after Wall Street soared overnight – a surge driven by hopes that the weakening of US economic data may lead to a shift in the central bank policy across the globe. Meanwhile, UK gilts declined following an announcement that the Government will not proceed with abolishing the top rate of income tax.”

Tim Hallinan – Trading Director

Main Headlines

The US Treasury has estimated the G7’s plan to cap the price of Russian oil exports could yield $160bn in annual savings for the 50 largest emerging markets, as Washington insists the scheme it has championed will keep a lid on energy costs around the world. The analysis was developed ahead of the IMF and World Bank’s annual meetings next week, where high energy costs triggered by Russia’s invasion of Ukraine will take centre stage as one of the heaviest burdens on the global economy. At the same time, the Opec+ oil producers’ cartel is planning new cuts in supply at its meeting this week.

British Prime Minister Liz Truss has refused to rule out cutting benefit payments by less than soaring inflation to help fund her tax-cutting growth plan in what is likely to spark the next political rebellion over her economic plans. Truss and her finance minister Kwasi Kwarteng are racing to set out how they will pay for more than 40 billion pounds of tax cuts announced last month, sparking turmoil in financial markets as they did not say how they would pay for them. The government has already been forced to reverse its plan to scrap the highest rate of income tax to appease Conservative Party lawmakers who saw it as a gift to the rich during a cost-of-living crisis.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. The Bank of England issued a statement in which it said it was reaffirming its willingness to buy up to 5 billion pounds of long-dated gilts at each of its daily auctions, after rejecting almost all offers earlier in the day. Liz Truss has pledged to reverse the decision to dramatically scale back the government’s flagship rail scheme in the north of England. British interior minister Suella Braverman will set out plans for new powers which would ban migrants who cross the English Channel from claiming asylum.

EUR

Euro is well bid against most major currencies overnight. Two top European Commission officials called for joint borrowing by the 27-nation European Union to finance a response to the energy price crisis that is threatening to plunge the bloc into recession. The International Monetary Fund’s executive board will consider Ukraine’s request for $1.3 billion in additional emergency funding on Friday as Russia’s war against the country continues. German Finance Minister Christian Lindner said Germany is ready to discuss measures that could contain gas and power prices in the European Union.

USD

The dollar is weaker than most major currencies in the early morning trade. The Treasury Department warned that unregulated cryptocurrencies could pose a risk to the US financial system. The council identified digital or “crypto” assets such as stable coins as well as lending and borrowing on the industry’s trading platforms as an “important emerging vulnerability.” Joe Biden said that the United States will place ‘further costs’ on Iran in response to the violent crackdown against ‘peaceful protestors’ in the country. Shares in South Korea’s biggest internet group Naver dropped on Tuesday after it announced a $1.2bn deal to buy Poshmark, a US clothing reseller.

Markets

A rally in global markets extended into a second day, lifting US index futures and European stocks, as investors wagered central banks may slow the pace of monetary tightening. Futures on the S&P 500 and Nasdaq 100 jumped at least 1.2% each after the underlying indexes posted a strong start to the quarter on Monday. Europe’s Stoxx 600 gauge rose for a third day. The Australian dollar briefly fell after policymakers raised interest rates by less than forecast. The dollar and Treasury yields declined for a second day. Investors see weaker-than-estimated US manufacturing data supporting a dovish tilt at the Federal Reserve after 3 percentage points of hikes began to tell on the economy.

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

9:00 a.m.: Spain Sept. unemployment change
11:00 a.m.: Eurozone Aug. PPI
2:30 p.m.: ECB’s Centeno speaks
5:00 p.m.: ECB’s Lagarde speaks
World Aviation Festival held in Amsterdam
Warsaw Security Forum starts in Poland and runs through tomorrow

Corporate Events

Earnings include Acuity Brands, Novagold

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