October 31, 2022

Daily Report 31/10/2022

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There was speculation that UK windfall taxes on energy companies and banks would be extended to help narrow the budget deficit. Although significant fiscal tightening would offer reassurance to bond markets, there were also concerns that tightening would undermine the economy and also lessen pressure for more aggressive Bank of England tightening. Sterling dipped lower after the European open with a slide against the dollar. The UK currency did find support and rallied later in the day with some evidence of position adjustment and a net closing of shorts. Wall Street gains boosted risk appetite which also provided notable Sterling support later in the day with an advance against the dollar.

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The German economy managed to avoid contraction for the third quarter with 0.3% growth for the latest 3-month period compared with expectations of a 0.2% drop. Euro-Zone industrial sentiment retreated to -1.2 for October from -0.3 previously, but slightly above consensus forecasts with services sector confidence also declining on the month. The overall business and consumer confidence index retreated to 92.5 for the month from 93.6 the previous month and in line with expectations. German consumer prices increased 0.9% for October with the year-on-year inflation rate increasing to a fresh record high of 10.4% from 10.0% and above consensus forecasts of 10.1%. The Euro-Zone inflation data will be released on Monday. After drifting lower in early Europe, the Euro attempted to regain ground, but was unable to regain the parity level and was subjected to choppy trading later in Europe. CFTC data recorded a further increase in long, speculative Euro positions to near 75,000 contracts in the latest week from below 48,000 previously and the largest long position since July 2021. The positioning will leave the Euro vulnerable to fresh selling if it is unable to make headway in the near term.

7.00 German Retail Sales (YoY) (Sep) Act. -0.9% Exp. -0.4% Prev. -1.5%
10.00 Gross Domestic Product (QoQ) (Q3) Exp. 0.2% Prev. 0.8%
10.00 Gross Domestic Product (YoY) (Q3) Exp. 2.1% Prev. 4.1%
10.00 HICP (YoY) (Oct) Exp. 9.8% Prev. 9.9%

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The US PCE prices index increased 0.3% for September with the annual rate unchanged at 6.2%. The core index increased 0.5% with an annual increase of 5.1% from 4.9% previously, but slightly below market expectations of 5.2%. Pending home sales declined 10.2% for September after a 1.9% the previous month and the lowest reading since May 2020. The data maintained unease over the housing sector, especially with high mortgage rates which are at the highest level since 2002. There was a slight downward revision to the University of Michigan 1-year inflation expectations index to 5.0% from 5.1% and the 10-year yield was held just below the 4.00% level. Overall 10-year yields edged back above the 4.00% level later in the day with the dollar settling just below 147.50.

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