September 28, 2022

Daily Report 28/09/2022

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Sterling attempted to stabilise during Tuesday, but underlying confidence remained very fragile at best given fundamental fears over the outlook. Bank of England chief economist Pill stated that the central bank must ensure orderly and functioning markets. He added that the MPC is not indifferent to the re-pricing of financial assets and that this re-pricing has a big impact on UK macro developments. Pill added that it was hard not to draw the conclusion that there will need to be a significant monetary policy response. Pill did, however, push back against the possibility of an emergency move with comments that it was better for banks to take a more considered approach.  Pill also stated that planned gilt sales should go ahead unless bond markets were disorderly.  UK bonds registered further losses on the day with the 10-year yield surging to just above 4.50% and the highest level since January 2008, reinforcing fears over higher mortgages.

Sterling failed to hold initial gains on Pill’s comments as higher bond yields sparked fresh fears over the outlook. Risk appetite also deteriorated again which sapped UK support. The UK currency dipped against the strong dollar before a recovery with the Euro hitting resistance and retreating late on. Overnight, the IMF criticised the government’s fiscal plans and Moody’s also warned over the credit implication. The BRC shop-price index increased 5.7% in the year to September and a fresh record high. Sterling confidence remained very weak.

Key Data 

BoE’s Cunliffe speech

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The common European currency is under pressure again having hit fresh 22 year lows. The main fundamentals that continue to weigh on the European currency continue to be in play with the geopolitical and energy crisis hitting the European Continent. The accident or for some the sabotage of the Baltic Sea gas pipeline heightens concerns on energy crisis affecting Europe. In such an environment, US bonds yields remain at high levels having approached 4% while international stock markets continue to be under pressure with the fear of the recession intensifying. Many expect that at some point European Central Bank’s President Christine Lagarde will have to take a more clear stance on the current levels of the euros exchange rate.

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US consumer confidence strengthened to 108.0 for September from a revised 103.6 previously and above consensus forecasts of 104.5. There were monthly increases in the current situation and expectations components with support from a decline in gasoline prices while confidence in the labour market also improved slightly. US consumer confidence strengthened to 108.0 for September from a revised 103.6 previously and above consensus forecasts of 104.5. There were monthly increases in the current situation and expectations components with support from a decline in gasoline prices while confidence in the labour market also improved slightly. US durable goods orders declined 0.2% for August after a 0.1% decline previously, slightly weaker than consensus forecasts while underlying orders increased 0.2%.

St Louis Fed President Bullard stated that the US has a serious inflation problem and the credibility of the inflation targeting regime is at risk. He added that rates are likely to peak around 4.5% and stay at level for some time. Minneapolis head Kashkari did state that there was a risk of overdoing it, but added that the Fed needed to keep tightening policy until we see compelling evidence that inflation has peaked and is heading down. The US currency posted further strong gains on Wednesday as equities also came under renewed pressure with the Euro sliding  to fresh 19-year lows against the dollar. US Administration officials played down the potential for any co-ordinated effort to curb dollar strength with the US currency surging to another 20-year high as commodity currencies also remained under pressure.

Key Data

Fed’s Chair Powell speech