November 10, 2022

Daily Report 10/11/2022

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There were no major domestic developments during Wednesday with underlying confidence in the UK economy remaining very fragile. There is no doubt that there will be a significant tightening of fiscal policy in the November 17th Autumn Statement with expectations that policy will be tightened by at least £50bn. Fiscal tightening will undermine the overall spending outlook and there are further expectations that the Bank of England will sanction only further limited interest rate hikes with a peak in rates well below market expectations. The latest RICS data also reported a dip in house prices. Overall risk appetite was also less confident during Wednesday which limited potential currency support.

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The Euro was unable to make further headway in early Europe on Wednesday and gradually lost ground into the US open. The Euro spiked higher following reports that the Russian Defence Ministry had ordered Russian troops to withdraw from the city of Kherson, but it quickly surrendered gains once again amid concerns that there would be stalemate in Ukraine during the winter period.
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Chicago Fed President Evans stated that much higher rates will bring the employment mandate into jeopardy and saw benefits in making adjustments to the pace of rate hikes soon. Minneapolis head Kashkari stated that he did not know what the decision would be in December. He added that he wanted to see how the economy evolves to reduce the risk of overshooting, but he also commented that it was entirely premature to talk of a policy pivot. According to Kashkari the Fed is a long way from the two mandates being in tension. Following the US congressional elections, Republicans remain on track to gain control of the House of Representatives, but the Party overall failed to meet expectations and the Democrats are now favourite to retain control of the Senate. Given that a runoff will take place in Georgia, a full result will not be confirmed until December. Markets were positioned for a stronger Republican performance and a weaker dollar.  In this context, the dollar posted renewed gains.

Key Data 

13.30 Consumer Price Index ex Food & Energy (MoM) (Oct) Exp. 0.5% Prev. 0.6%
13.30 Consumer Price Index ex Food & Energy (YoY) (Oct) Exp. 6.5% Prev. 6.6%