October 27, 2022

Daily Report 27/10/2022

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Overall Sterling sentiment remained stronger following the appointment of Sunak as Prime Minister with optimism that there would be a more credible set of economic policies. Chancellor Hunt announced on Wednesday that the fiscal statement would be delayed from October 31st until November 17th, but it will be upgraded to a full Autumn one. There was some speculation that the decline in gas prices and retreat in bond yields to 1-month lows would tend to improve the macro-economic outlook and potentially allow the government to make a more moderate stance in tightening policy which would underpin the economy. Hunt also stated that he reaffirmed central bank independence to Bank of England Governor Bailey which also helped underpin market confidence. There will, however, be increased uncertainty with the BoE not seeing a fiscal statement before the November 3rd policy decision. Futures markets are pricing in around a 30% chance that the bank will opt for a 100 basis-point rate hike. Sterling gained further support after the US open from a stronger tone in risk appetite and gains in equities.

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Euro-Zone M3 money supply increased to 6.3% in the year to September from 6.1% previously with private loans growth of 4.4%. The Euro posted sharp gains after the European open with a move above parity for the first time in three weeks as the dollar lost ground with the move triggering further short covering. The ECB will announce its latest policy decision on Thursday with consensus forecasts of a 75 basis-point rate hike to 2.00%. As well as the rate decision, forward guidance from the ECB and bank President Lagarde will also be an important element for Euro sentiment.

Key Data

13.15 ECB Monetary Policy Decision Statement
13.15 ECB Rate on Deposit Facility Exp. 1.5% Prev. 0.75%
13.15 ECB Rate On Main Refinancing Operations Exp. 2% Prev. 1.25%
13.45 ECB Press Conference
15.15 Christine Lagarde Speech

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The US goods trade deficit widened sharply to $92.2bn for September from $87.3bn the previous month and well above consensus forecasts of $87.5bn. There was a significant increase in imports for the month while exports declined. The data could have a small negative impact on the third-quarter GDP estimate. The Bank of Canada policy decision to increase interest rates by a smaller than expected 50 basis points was a significant factor in reinforcing speculation that the Federal Reserve would also adopt a slightly less hawkish stance in order to allow the bank to assess the potential impact of sharp rate hikes over the last few months. Stronger speculation undermined the US dollar and the boost to risk appetite also curbed any defensive support for the US currency.

Key Data

13.30 Gross Domestic Product Annualised (Q3) Exp. 2.4% Prev. -0.6%
13.30 Durable Goods Orders (Sep) Exp. 0.6% Prev. -0.2%