August 23, 2022

Daily Report 23/08/2022

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Following Russia’s announcement that supplies through the Nord-Stream pipeline would be suspended for three days at the end of August, there was a fresh surge in gas prices with UK futures hitting a fresh record high. The surge in prices will put further upward pressure on the overall wholesale price of energy and there will also be expectations of an even steeper increase in retail and business energy prices which will inevitably have important ramifications. In this context, there were further fears over the UK economic outlook and intense pressure for the government to take additional action to cushion the impact. As the dollar gained further ground and the Euro came under sustained pressure, Sterling dipped to fresh 2-year lows against the dollar. The latest PMI business confidence data will be released on Tuesday with Sterling sentiment liable to dip again if there is a dip into contraction territory for manufacturing or services while there be some relief if sentiment manages to hold steady.

Key Data 

9.30 S&P Global/CIPS Services PMI (Aug) Exp. 52 Prev. 52.6

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The Euro remained under pressure ahead of Monday’s US open with a further lack of confidence in the Euro-Zone economy. The immediate focus remained on gas supplies and prices following an announcement from Russia that gas supplies through the Nord-Stream 1 pipeline would be suspended for three days from August 31st. Russia also announced that supplies thereafter would continue at 20% of normal levels. Following the announcement, there was a fresh surge in gas prices to a new record high in Europe with particular fears over the German outlook. An outage at a key French nuclear plant also contributed to the spike in energy prices. The Euro continued to lose ground and dipped to test the parity level ahead of the New York open with the dollar also gaining net defensive support as equities dipped. In its latest monthly report, the Bundesbank stated that a recession is increasingly likely with a high degree of uncertainty over gas prices and sharp increases in prices likely to weigh heavily on households and companies. The bank also stated that inflation will continue to accelerate and could peak above 10% this autumn.

Key Data 

8.30 German S&P Global/BME Composite PMI (Aug) Exp. 47.4 Prev. 48.1
8.30 German S&P Global/BME Manufacturing PMI (Aug) Exp. 48.2 Prev. 49.3
9.00 S&P Global Composite PMI (Aug) Exp. 49 Prev. 49.9

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The US Chicago Fed national activity index strengthened to 0.27 for July from a revised -0.25 the previous month which suggested that the overall data flow improved for the month, although the impact was very limited given that markets are focussed on the outlook. US Treasuries continued to lose ground after Monday’s New York open with further concerns over underlying inflation trends. The latest market indicator of US inflation expectations also posted a 9-week high amid expectations of persistent inflation which maintained fears that the Fed would be forced into a more aggressive stance. The 10-year yield pushed above the 3.00% level which contributed to fresh dollar demand.

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