October 6, 2022

“The US dollar regained some ground after suffering losses in the previous two days amid the return of more risk-adverse sentiment. Markets remain highly volatile, with investor sentiment still significantly frail due to the uncertainty surrounding the global economic outlook.”

Tim Hallinan – Trading Director

Main Headlines

The Biden administration and its supporters have reacted angrily to the Opec+ decision to cut oil production, seeing it as a rebuff to the US president’s efforts to improve relations with Saudi Arabia. The White House made clear that it viewed the decision by the oil production cartel, in which the plus sign represents the inclusion of Russia, to reduce daily production by 2m barrels, as a geopolitical move, and a slight to Biden who is seeking to cut Russian revenues and keep the petrol price down before November’s congressional elections.

The UK’s credit rating came under further threat yesterday as Fitch put the country on a “negative” outlook while giving a damning verdict on the government’s fiscal policy and political credibility. The rating agency maintained the UK’s AA- investment grade but warned that the outlook was now negative rather than stable, mirroring the action taken last week by its peer S&P. Fitch said that large, unfunded tax cuts could lead to a significant increase in deficits in the medium term, while creating an immediate tension between monetary and fiscal policy given high inflation.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. Goldman Sachs is among a group of investors seeking to buy cut-price private assets from UK pension funds, which are rushing to raise cash after last week’s crisis in the government bond market. The UK’s largest private-sector pension scheme increased its exposure to debt-fuelled investment strategies earlier this year in spite of warnings the move would bring “significant risks.” The £90bn Universities Superannuation Scheme ploughed more of its members’ assets into leveraged hedging.

EUR

Euro is well bid against most major currencies overnight. Europe risks a huge reduction in industrial activity and social unrest if it does not act quickly to bring down energy prices as winter approaches, Belgium’s prime minister has said. Germany’s “dangerous” €200bn energy bailout has sparked further EU infighting, with Spain and Belgium the latest member states to voice misgivings. Norway’s centre-left government said today it planned to raise taxes on the country’s oil and gas industry by 2 billion Norwegian crowns in 2023 by partly reversing an incentive package introduced during the coronavirus pandemic.

USD

The dollar is weaker than most major currencies in the early morning trade. A planned cut in production by Middle Eastern oil states, in defiance of White House pleas, is likely to further spike already rising gasoline prices. More pain at the pump would be a major blow to Democrats weeks from the midterm elections and bring Biden’s boasts about getting the price per gallon down from record highs in June back to haunt him. Biden has said that Hurricane Ian, and other extreme events like wildfires and droughts, has ended the discussion “about whether or not there’s climate change and we should do something about it.”

Markets

US equity-index futures erased gains, while European stocks traded modestly higher, as investors debated whether higher oil prices would further weaken growth, potentially slowing central banks’ rate-hike cycles. Futures on the S&P 500 and Nasdaq 100 slid at least 0.1% each, while Europe’s STOXX 600 benchmark gained 0.4%. US crude futures traded above $88 a barrel, taking this week’s surge to 11%, after OPEC+ said it would cut daily output by 2 million barrels. The dollar lost 0.2%. Treasuries fell, with the two-year rate hovering above 4.15%. Goldman Sachs Group Inc. increased its fourth-quarter price target for Brent to $110 a barrel.

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

8:00 a.m.: Germany Aug. factory orders
8:00 a.m.: Sweden Aug. industrial orders
9:00 a.m.: Hungary one-week deposit rate
9:00 a.m.: Hungary Aug. industrial production
9:00 a.m.: Spain Aug. industrial output
9:30 a.m.: Germany Sept. S&P Global Construction PMI
10:30 a.m.: BOE Decision Maker Panel survey
10:30 a.m.: UK S&P Global/CIPS UK Construction PMI
11:00 a.m.: Eurozone Aug. retail sales
1:30 p.m.: ECB publishes account of Sept. meeting
2:30 p.m.: US weekly jobless claims
3:00 p.m.: Poland central bank’s Glapinski speaks
7:00 p.m.: BOE’s Haskel speaks
The Nobel Prize in Literature is announced

Corporate Events

Earnings include Constellation Brands, AngioDynamics, Conagra, Levi Strauss

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