August 03, 2022

Daily Report 03/08/2022

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There were no significant domestic developments during Tuesday, although markets were monitoring developments surrounding tax policies of the two Conservative Party leadership candidates. Latest polls continued to point to a strong lead for Truss over Sunak which could fuel expectations of stronger tax cuts. At this stage, expectations of an even sharper increase in retail energy prices in October remained a more important focus given the political and economic impact. Trends in risk appetite tended to dominate Sterling moves during the day. Overall confidence in equities was more fragile which limited potential Sterling support.

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The Euro was unable to make any headway in early Europe on Tuesday and gradually lost ground into the US open with unease over the Euro-Zone outlook still a negative factor. Overall risk appetite was weaker and the Euro dipped to lows as a recovery in US yields triggered renewed dollar buying.

Key Data

10.00 Retail Sales (YoY) (Jun) Exp. -1.7% Prev. 0.2%

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The US JOLTS data recorded a decline in job openings to 10.70mn for June from a revised 11.30mn the previous month and below consensus forecasts of 11.00mn. San Francisco Fed President Daly stated that work on inflation is nowhere near almost done and that the Fed has a long way to go on the task. She added that the central bank is looking at incoming data to decide if the pace of rate hikes can be downshifted or maintained at the current pace. Chicago Fed President Evans stated that he is hopeful that the Fed can increase rates by 50 basis points in September and then continue with rate hikes until the beginning of the second quarter of 2023. He also expects to see a Fed Funds rate of 3.75-4.00% by the end of 2023. The hawkish rhetoric triggered fresh doubts whether market pricing over Fed rates was realistic and the dollar posted significant net gains. Cleveland Fed President Mester added that she hadn’t noticed any evidence that inflation has even begun to level off, maintaining hawkish rhetoric.

Key Data

15.00 ISM Services PMI (Jul) Exp. 53.5 Prev. 55.3