July 26, 2022

Daily Report 26/07/2022

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The UK CBI industrial orders index declined to 8 for July from 18 previously and below consensus forecasts of 13. Output increased at a slower rate in the quarter and business confidence deteriorated again while there was a slight easing of cost pressures and investment intentions were slightly stronger. The data had little impact with Sterling able to secure net gains on the day. Although confidence in the UK outlook remained weak, Friday’s business confidence data indicated some resilience and there was a reluctance to sell the currency ahead of next week’s Bank of England policy decision.

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The German IFO business confidence index retreated to 88.6 for July from a revised 92.2 previously which was lower than consensus forecasts of 90.2 and also the lowest reading since June 2020. The current assessment index declined to 97.7 from 99.4 in June while the expectations index dipped sharply to 80.3 from 85.5 with both readings below market expectations. The IFO commented that uncertainty among companies has increased significantly and recession is knocking at the door with the risk continuing to increase if current developments continue. In this context, developments in the energy sector remained an important element during the day. Expectations of further ECB rate hikes also provided an element of Euro support. Gazprom announced that there would be a net reduction in supplies to around 20% of capacity from 25% seen since last week’s restart. Supplies at this level would make it extremely difficult for Germany to build up sufficient supplies to meet demand during the winter with expectations that emergency programmes will be put into effect to curb demand which will have an important negative impact on the economy.

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The Chicago Fed national activity index was unchanged at -0.19 for June with little impact. US Treasuries edged lower ahead of the New York open with the 10-year yield back above 2.80%. Markets expect a 75 basis-point increase in interest rates at this week’s meeting with forward guidance very important. The Dallas Fed manufacturing index dipped further to -22.6 for July from -17.7 previously, maintaining concerns surrounding the manufacturing sector.

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