October 07, 2022

Daily Report 07/10/2022

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The UK PMI construction index rebounded to a 3-month high of 52.3 for September from 49.2 previously and above consensus forecasts of 48.0. The housing sector strengthened to a 5-month high and there was a further important easing of supply shortages. Cost pressures were stronger for the month, but overall inflation pressures eased slightly. Overall business confidence also declined to the lowest level since July 2020, maintaining concerns over the outlook. The latest Bank of England business survey recorded an increase in one-year inflation expectations to 9.5% from 8.4%. The Bank of England commented that the move in gilt yields threatened to exceed the size of the cushion for many LDI funds. It added that the central bank will gauge the health of the bond market before it unwinds the emergency intervention.  Fitch announced that it had downgraded the central bank’s credit rating outlook to negative from stable. The bank of England held a more successful bond-buying auction on Thursday, but overall yields increased significantly on the day. Overall, Sterling sentiment deteriorated during the day with a lack of confidence in the domestic outlook amplified by weaker global risk conditions. Bank of England member Haskel criticised the government fiscal stance and reiterated that the bank would bring inflation back to target.

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German industrial orders declined 2.4% for August after a 1.1% decline the previous month and weaker than consensus forecasts with production also declining. ECB minutes from the September meeting stated that inflation is far too high and likely to stay above target for an extended period. A large number of members back the rate increase of 75 basis points, although some members preferred a 50 basis-point hike. The Euro was unable to make any headway ahead of the New York open with a firm underlying dollar tone amid fragile equities and underlying Euro-Zone concerns.

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US initial jobless claims increased to 219,000 in the latest week from a revised 190,000 previously and above consensus forecasts of 203,000 while continuing claims increased to 1.36mn from 1.35mn. Challenger reported layoffs of just below 30,000 for September and a 68% increase from the previous year and the survey also reported that hiring intentions had declined to the lowest September level since 2011. Weaker equity markets provided a fresh round of dollar support and the Euro dipped. There was little change on Friday ahead of the latest US jobs data with expectations that non-farm payrolls will increase around 250,000 for September and unemployment at 3.7%. The data will trigger further choppy trading.

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12.30 Nonfarm Payrolls (sep)        Forecast 250k   Previous 315k