September 14, 2022

“The US inflation report released yesterday was expected to show a sequential decline, strengthening the case that the USD may be past peak inflation. However, figures came in above estimates likely leading to a third consecutive interest rate hike of 75 bps. UK inflation surprisingly declined in August, from 10.1% previously to 9.9%”

Sam Cornford, Partner – Head of Trading

Main Headlines

The unexpected rise in inflation reported yesterday was an unwelcome blow for President Joe Biden’s Democrats, but a new poll shows Democratic voters just as enthusiastic as their Republican counterparts, pointing to a potentially close contest in November’s elections. Republicans remain favoured to win control of the US House of Representatives – with the Senate on a knife-edge – amid widespread dissatisfaction with Biden’s presidency and months of sharp price increases that the poll showed remain the top concern for Republican and Democratic voters alike.

UK businesses have still not been given details, figures, or the timings of the government’s proposed energy support package, raising fears that it won’t be ready in time to be implemented in October. Companies have been warned by UK government officials that they will have to wait longer than households for help from its £150bn energy package, due to the difficulty of launching a support system before November. Prime Minister Liz Truss had vowed that firms would receive “equivalent” support to households when she announced her plan for the winter energy crisis last week, raising hopes that help for businesses would be ready at the beginning of next month, although officials said they still hoped the scheme would go live next month.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. Inflation fell for the first time in nearly a year in August as lower diesel and petrol prices took some pressure off struggling households, but it remains close to its 40-year record. The Office for National Statistics (ONS) said Consumer Prices Index inflation reached 9.9% in the year to August, down from 10.1% the previous month. Experts had expected the figure to be unchanged between the two months. Economists now expect the inflation rate to hover around the 10 per cent level through the autumn rather than rising to more than 15 per cent, after prime minister Liz Truss’s announcement that the government would protect households from an 80 per cent increase in gas prices in October.

EUR

Euro is well bid against most major currencies overnight. The European Union is set to unveil plans today to skim off windfall profits from energy companies and impose cuts in electricity usage across the bloc, in a package designed to shield citizens and businesses from surging energy prices. European governments have already ploughed hundreds of billions of euros into tax cuts, handouts and subsidies as they attempt to contain an energy crisis that is fuelling record inflation, forcing industries to shut production and hiking citizens’ bills ahead of winter.

USD

The dollar is weaker than most major currencies in the early morning trade. Inflation in the US remained unexpectedly high last month, news that drove Wall Street to its worst day in more than two years. Prices rose 8.3% in the 12 months through August, the Labour Department said, faster than the 8.1% that economist had expected. That was down from 8.5% in July, driven by lower petrol costs. But the costs of food, housing and medical care continued to surge, disappointing investors.  As winter approaches, other fuel prices could influence inflation data. The cost of heating a home with natural gas, the most common source of home-heating fuel in the US, is expected to jump more than 25 percent from last year, to $952 for the six months from October through March, according to the National Energy Assistance Directors Association.

Markets

US stocks plummeted yesterday, hit by a surge in US Treasury yields sparked by worse-than-expected inflation data. The S&P 500 sank 4.32% to 3,933, reaching its lowest level since last Wednesday and suffering its largest drop since June 2020. Meanwhile, the Nasdaq 100 plunged 5.54% to 12,034, its worst day since March 2020, with heavy-hitters Apple, Microsoft and Amazon falling 5.84%, 5.48% and 7.03%, respectively, at the closing bell. The Euro Stoxx 50 lost 1.7%. Elsewhere, oil prices declined by circa 1%.

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

8:00 a.m.: UK Aug. CPI, PPI
8:00 a.m.: Sweden Aug. CPI
8:00 a.m.: Romania July Industrial Output
10:30 a.m.: UK July House Price Index
11:00 a.m.: Eurozone July Industrial Production
4:30 p.m.: ECB’s Villeroy speaks
4:30 p.m.: EIA US crude oil inventory report
Chinese President Xi Jinping is expected to travel to Kazakhstan for a state visit

Corporate Events

Earnings include Industria de Diseno Textil
EU’s General Court to rule on Google’s appeal of €4.3 billion antitrust fine

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