September 05, 2022

Daily Report 05/09/2022

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Sterling rallied after the mixed labour-market data with a peak against the US dollar, but it was unable to hold the gains and dipped after the European close. Overall confidence in the UK economy remained notably weak with on-going fears surrounding the impact of a surge in energy prices. CFTC data recorded a small increase in short Sterling positions for the week to just above 29,000 contracts. The new Prime Minister will be formally announced later on Monday with very strong expectations that Truss will be declared the winner. Markets will be looking closely at immediate proposals on taxation and spending with additional support for both households and businesses a key element for UK market sentiment. Bank of England MPC member Mann is due to speak on Monday with the rhetoric on interest rates significant for sentiment amid choppy trading conditions.

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The Euro was hurt by an announcement from Gazprom that gas supplies through the Nord-Stream pipeline would not re-start on Saturday due to an oil leak with no timetable for a resumption of supplies. It was assumed that the move was in retaliation for the G7 Russian move and fears over energy supplies intensified immediately. Euro sentiment remained notably weak on Monday as it retreated to test 19-year lows against the dollar amid on-going fears over the energy situation.

Key Data 

10.00 Retail Sales (YoY) (Jul) Exp. -0.7% Prev. -3.7%

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The dollar tended to drift lower ahead of Friday’s payrolls data with the Euro edging higher amid a limited round of short covering. There were hopes that gas flows through the Nord-Stream pipeline would resume over the weekend, but there was still a high degree of uncertainty which stifled activity.  The G7 announced that it would agree to implement a December price cap on Russian crude which would effectively be an attempt to block Russian exports US non-farm payrolls increased 315,000 for August and slightly above consensus forecasts of 300,000 after a revised 526,000 increase the previous month. Manufacturing jobs increased 22,000 on the month with a 16,000 gain in construction employment and stronger rate of increase in retail jobs amid gains in most sectors. According to the household survey, the unemployment rate increased to 3.7% from 3.5% with a strong increase of over 440,000 in the number of employed offset by a sharp increase in the participation rate. There was a sharp dip in the number of people not in the labour force which suggests that the supply of labour has improved. Average hourly earnings increased 0.3% for the month compared with expectations of a 0.4% increase and the year-on-year increase held at 5.2%.

US Bank Holiday