August 09, 2022

Daily Report 09/08/2022

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Sterling posted significant gains at Monday’s European open before fading quickly as low trading volumes contributed to choppy trading conditions. Sterling was supported by favourable risk conditions during the day, but there were still important reservations surrounding the domestic outlook which limited potential support for the currency as markets remained focussed on October’s surge in retail and business energy costs. The UK economic calendar is relatively light until the latest monthly and quarterly GDP data which is due on Friday. Markets will also be monitoring the latest rhetoric from the two Conservative Party leadership candidates with a particular focus on tax policies, especially as there will be an impact on Bank of England rate expectations. The latest BRC data recorded a like-for-like increase in retail sales of 1.6% in the year to July after a 1.3% decline for June. Barclaycard recorded a 7.7% annual increase in July consumer spending, but this was dominated by a 44% increase in utilities spending with vulnerability elsewhere.

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The Sentix Euro-Zone investor confidence index edged higher to -25.2 for August from -26.4 previously but was below consensus forecasts of -24.7 and was also held close to 2-year lows.  According to Sentix, the situation remains very difficult and that a recession in the Euro-Zone is still very likely. It added that consumer sentiment is the greatest economic burden with consumers more and more aware of the financial burden of high energy costs. The situation in Germany is even worse while there was evidence that conditions in the US had improved slightly on the month. Germany reiterated that it rules out any approval of the Nord-Stream 3 pipeline and also confirmed its commitment to sanctions against Russia which maintained concerns over the outlook, although gas prices declined slightly on the day which provided an element of relief for the Euro.

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Overall trading was relatively lacklustre during the day which is often the case on the Monday following a US employment report. Trading volumes also remained low during the peak holiday season in the US and Europe and there were no comments from Fed speakers during the day. The US employment trends index declined to 117.63 for July from a revised 118.70 previously, but markets were focussed on last Friday’s jobs data which suggested that the labour market was still robust with evidence of upward pressure on wages.
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