October 12, 2022

Daily Report 12/10/2022

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Sterling was unable to make any headway in early Europe on Tuesday despite the stronger than expected UK labour-market data and further Bank of England action to wider bond purchases to include index-linked gilts. There were further concerns over instability in the gilts market which was a symptom of a lack of underlying confidence in government policies. IMF chief economist Gurinchas stated that the government should ensure that its tax and spending plans should be in line with the Bank of England’s inflation-fighting goals. He did welcome the move to bring forward the medium-term fiscal plans to October 31st. US 10-year yields edged lower during the day which provided an element of relief and risk appetite also recovered after the Wall Street open which provided significant Sterling relief. Andrew Bailey insisted that pension funds needed to rebalance their holdings by the end of this week as he looked to resist pressure to extend the emergency bond-buying programme. In response, Gilts came under renewed selling pressure and Sterling dipped sharply as risk appetite deteriorated. In Asian trading on Wednesday, there were reports that Bailey would U-turn and continue bond buying if necessary and Sterling managed to recover slightly. UK GDP declined 0.3% for August compared with expectations of no change as industrial production dipped sharply.

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The Euro was unable to make any headway in early Europe on Tuesday, but again did demonstrate an element of resilience and managed to resist significant losses amid lower gas prices. ECB council member Lane stated that there is no evidence of a broad de-anchoring of medium-term inflation expectations.

14.30 Christine Lagarde Speech

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The US NFIB small-business confidence index edged higher to 92.1 for September from 91.8 previously and above consensus forecasts of 91.2. According to the survey, 30% of companies reported that inflation was the most important issue for their business which was marginally higher than August, but below 43-year highs recorded in the July survey. The IBD consumer confidence index dipped to 41.6 for October from 44.7 previously, but slightly above expectations.

FOMC Minutes