September 08, 2022

Daily Report 08/09/2022

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Bank of England Governor Bailey stated that there are dollar specific factors behind Sterling weakness with the Fed much more focussed on bringing the demand shock under control, although he did admit that there is a UK story behind Sterling weakness as well. Bailey added that the government’s plan to cap surging energy costs could slow inflation, but it was too soon to say what that will mean for interest rates. He also expressed concerns over the potential risk of an increase in inflation expectations given the surge in the headline rate. According to Bailey, it is Putin who is going to put the economy into recession not the MPC. MPC member Tenreyro stated that the bank should proceed slowly when there is a lot of uncertainty and a gradual increase in rates reduces the risk of over-shooting. She added that without a rate hike in August rates were sufficient to return inflation to target. Chief economist Pill expressed that there was a high degree of uncertainty which makes it difficult to have a strong view. The government’s energy-support package will provide an element of clarity. Sterling came under sustained pressure during European trading on Wednesday with confidence in the outlook continuing to deteriorate, especially with concerns over an impending surge in government borrowing to fund the energy cap.

No Key Data

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German industrial production declined 0.3% for July after a revised 0.8% increase the previous month, but slightly stronger than expected. The Euro was unable to make any headway in early Europe on Wednesday although it held just above the 19-year lows posted on Tuesday. The Euro rallied after the US open as the dollar retreated from its best levels while there was an element of short covering ahead of the ECB as it rallied towards parity. The ECB will announce its latest policy decision on Thursday with markets split between a 50 and 75 basis-point rate hike but leading slightly towards the latter. Comments from bank President Lagarde and overall forward guidance will be watched closely with choppy Euro trading after the decision.

Key Data 

13.15 ECB Monetary Policy Decision Statement
13.15 ECB Deposit Rate Exp. 0.75% Curr. 0%
13.45 ECB Press Conference
15.15 Christine Lagarde Speech

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The Federal Reserve Beige Book of economic conditions stated that price growth had slowed in 9 of the 12 districts while companies had managed to improve worker retention and there was generally subdued growth within the economy. Overall, there was slightly increased optimism that inflation pressures were peaking. Cleveland Fed President Mester reiterated that she was not convinced inflation has peaked yet with wages growth too high, although she added that she will decide on the preferred rate increase this month at the Fed meeting. The New York Fed stated that global supply-chain pressures eased in August. Fed Governor Brainard stated that monetary policy will need to be restrictive for some time and that the policy rate will ned to be raised further, but there was no indication on the likely size of the rate hike this month. She reiterated that it was critical to guard against an increase in inflation expectations. She did, however, note that global tightening may help to reduce US inflation pressures which offered a slightly more dovish element.

Key Data

14.10 Jerome Powell Speech