September 29, 2022

Daily Report 29/09/2022

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After the European open, the Bank of England announced that it would intervene to buy long-dated gilts in the market to combat disorderly conditions. It would conduct daily operations to buy gilts until October 14th as the market had become dysfunctional and was posing a threat to financial stability. The bank also announced that the scheduled gilt sales as part of the quantitative tightening programme would now be delayed until the end of October. Gilt yields declined sharply after the announcement, although volatility remained very high. Sterling initially spiked higher before being subjected to renewed selling pressure amid underlying fears over the UK outlook and lower yields. Markets also scaled back their expectations of interest rates hitting 6% next year. S&P Global Ratings stated that it thinks the UK economy is already in recession which will last at least four quarters and sentiment remained extremely fragile. Subsequent reports indicated that the Bank of England was uneasy over the threat of margin calls in the bond market with the bank also concerned that some key investment funds would have collapsed without action to stabilise yields.

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German consumer confidence dipped further to a record low of -42.5 for September from a revised -36.8 previously and below consensus forecasts of -39. Hawkish ECB rhetoric continued with council member Kazimir stated that a 75 basis-point rate hike would be a good option for the October meeting. Bank President Lagarde stated that the bank will continue to increase rates in the next several meetings, but hawkish rhetoric had only limited impact. There were further concerns over energy supplies to the Euro-Zone, especially with strong speculation that damage to the Nord-Stream pipelines was caused by sabotage. There were also important concerns over seasonal pressures which will undermine activity in the area.

Key Data

13.00 German Harmonized Index of Consumer Prices (YoY) (Sep) Exp. 10% Prev. 8.8%

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The August US trade deficit declined to $87.3bn from $90.1bn the previous month. The Bank of England move to intervene and buy long-dated UK bonds had a significant global impact with US Treasuries also rallying strongly with the 10-year yield sliding to near 3.80% from overnight highs at 12-year highs above 4.00%. Atlanta Fed President Bostic stated that his baseline assessment was for a further 75 basis-point rate hike at the November policy meeting with another 50 basis points in December which would take the Fed Funds rate to 4.50%. He added that supply-side improvements had not come as fast as expected.

Key Data 

13.30 Gross Domestic Product Annualised (Q2) Exp. -0.6% Prev. -0.6%