September 14, 2022

Daily Report 14/09/2022

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Sterling held a firm tone after the UK labour-market data with expectations that evidence of a tight labour market would lead to a more aggressive monetary tightening by the Bank of England. Consensus forecasts are that the central bank will raise rates by a further 50 basis points to 2.25%. Sterling consolidated ahead of the US inflation data, but then declined very sharply on the release. The dollar posted strong gains and damage to the UK currency was compounded by the slide in risk appetite as equity markets posted heavy losses. The headline UK inflation rate declined to 9.9% for August from 10.1% the previous month and below expectations of 10.2% while the core rate edged higher to 6.3% from 6.2%. Immediate reaction was muted with Sterling still hampered by vulnerable risk conditions.

Key Data 

7.00 Consumer Price Index (YoY) (Aug) Act. 9.9% Exp. 10.2% Prev. 10.1%

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The German ZEW economic sentiment index declined to -61.9 for September from -55.3 the previous month which was slightly weaker than consensus forecasts and a fresh record low for the index while there was a steeper decline in the current conditions component. The Euro still edged higher ahead of the US inflation data amid hopes that the data would suggest an underlying moderation in inflation pressures with Ukraine hopes also underpinning sentiment.

Key Data 

12.00 Ursula von der Leyen Speech

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US consumer prices increased 0.1% for August compared with expectations of a 0.1% decline with the year-on-year inflation rate held to 8.3% from 8.5% and above consensus forecasts of 8.1%. Food prices increased 0.8% with an annual increase of 11.4%. Energy prices dipped 5.0% on the month with an annual 23.8% increase. Underlying prices increased 0.6% on the month and well above market expectations of a 0.3% increase with the year-on-year increase increasing to 6.3% from 5.9% and above predictions of 6.1%. There were significant increases for shelter and medical care services for the month with broad-based increases. The increase in core inflation will be of particular concern for the Federal Reserve, especially with evidence that price increases were widespread on the month. Fed Fund futures dipped after the release with market fully pricing in an increase in interest rates of 75 basis points at next week’s policy meeting. There was also some speculation that the Fed could opt for a 100 basis-point hike which triggered a sharp market reaction.

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