October 14, 2022

Daily Report 14/10/2022

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The latest Bank of England survey recorded a tightening in conditions with credit availability expected to decline over the next three months. Sterling still manged to make some headway after Thursday’s European open and then surged around the New York open amid speculation that the government was preparing for another U-turn on the fiscal support package. A government spokesman and Chancellor Kwarteng both denied that there would be a policy swerve, but markets were convinced that the political position was untenable and that there would have to be further concessions and reversal of some tax cuts to avoid a further rout in bond markets once Bank of England support was removed.

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The euro area’s economy is now expected to grow by just 0.5% in 2023 as factors including the war in Ukraine, record inflation and the continued impact of the COVID-19 pandemic weigh on the outlook, the International Monetary Fund said this week. The 19-country eurozone — which will grow to 20 members from 1 January 2023 with the adoption of the single currency by Croatia — is now projected to post the slowest growth of any region worldwide next year after the IMF cut its forecast by 0.7 percentage points from its previous outlook delivered just three months ago. Germany, the European Union’s economic powerhouse, is now expected to post negative annual growth (-0.3%) as is Italy (-0.2%). The outlook for France and Spain remains positive although lower than the July forecast with annual GDP now seen at 0.7% and 1.2% respectively.

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US consumer prices increased 0.4% for September, above consensus forecasts of 0.2%, with the year-on-year rate declining only slightly to 8.2% from 8.3%. Food prices increased 0.8% with an annual increase of 11.2%. Energy prices posted a third successive monthly decline with the annual increase slowing to 19.8% Core prices increased 0.6% for the second month running and above forecasts of 0.5% with the year-on-year rate strengthening to 6.5% from 6.3% which was above expectations of 6.5% and the highest rate since late 1982. Following the stronger than expected data, there was a further shift in Fed expectations with a 75 basis-point hike for the November meeting priced in fully while markets also increased their expectations of the terminal rate to around 4.85% with expectations that a very hawkish stance will continue.

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13:30 US Retail Sales                                 Forecast 0.2   Previous 0.3
15:00 Michigan Consumer Sentiment      Forecast 59 previous 58.6