ACM Update 10-10-22
Chancellor Kwarteng performed a U-Turn, whilst Liz Truss declared herself “Moving on Up” at the Conservative Party Conference. In the US jobs data remains buoyant. There was less central bank action (and intervention) last week, but almost as much volatility taking place. Despite that, GBP-EUR & GBP-USD finished almost exactly where they started the week on both pairs.
In the UK, there were few economic data releases of note last week. The tax rate U-turn from Chancellor Kwarteng gave a boost to the Pound early in the week, erasing the remainder of the losses from ten days earlier. After the intervention from the Bank of England the week before, there is still concern as to what will happen when the current emergency gilt-buying scheme ends this Friday. Although, the Bank have actually bought very low amounts in the final days of last week. Already today, they have sought to calm markets, assuring an “orderly end” to the bond-buying scheme.
New PM Liz Truss’ ability to stand up for a speech and send GBP downwards continued at the Tory Party Conference in Birmingham. She strutted onto the stage to M People’s “Moving on Up”, perhaps forgetting other lyrics of “You’ve done me wrong, your time is up” and “Move right out of her baby, go on pack your bags”. Perhaps not her best decision of late, but by no means her worst.
Late on Friday, news emerged that the battle to be able to hold a second Scottish Referendum will head to the UK Supreme Court this week. The SNP & Scottish Greens are trying to push forwards a second vote next year, and are seeking the ability to be able to do so without consent from Liz Truss and her Government. Sterling wobbled around half a per cent on the news, as shown in the GBP-Euro chart below:
In the US, it was all eyes on Friday’s Non-Farm Payrolls data. Expectation was for 250,000 jobs, with the figure coming in fractionally above at 263,000 added to the US economy in September. Overall unemployment fell to 3.5%, which was 0.2% beneath the forecast number.
The figures will likely mean the Federal Reserve have to press on with their sizeable interest rate hikes, in an attempt to cool the US jobs market. It also pushes their “pivot-point” back further, the point at which they will need to be looking to cut interest rates to avoid the dreaded hard landing for the US economy.
As recently, these are great opportunities for any clients needing to sell Dollars into GBP or Euros in the short term. Do reach out to the team if you have these requirements. Recent moves on Sterling-Dollar can be seen below:
In the Eurozone, a relatively quiet week all things considered. The minutes from the latest ECB meeting showed the committee remain concerned about high inflation remaining a factor in the medium term. They are prepared to make the sizeable rate hikes required, even if it sacrifices growth. Inflation hit 10% for the bloc in recent figures, with the Netherlands as high as 17%. Sourcing of gas for the winter remains a concern.
As a result, ECB President Christine Lagarde maintained the ECB will continue to raise rates in the “next several meetings”. It is “difficult to say inflation is at its peak” she commented in a speech on Tuesday afternoon.
Elsewhere, we had a smaller than expected rate hike from the RBA in Australia of 25 basis points (now 2.60%). The RBNZ in New Zealand went for a full 50 basis points in their meeting, their headline rate now at 3.5%, up from 0.25% this time last year.
The week ahead:
Monday – Bank Holidays in US (Columbus Day), Canada (Thanksgiving) & Japan (Health-Sports Day)
Tuesday – UK Unemployment & Claimant Count (07:00 UK time), Gov Bailey speech (19:35)
Wednesday – UK GDP m/m exp 0.0% (07:00), US PPI (13:30), Lagarde Speech (14:30), Fed Minutes (19:00)
Thursday – US CPI Inflation exp y/y 8.1% (13:30)
Friday – US Retail Sales (13:30)
So, to start this week trading volumes are likely to be lower on Monday owing to the US bank holiday for Columbus Day. Most of the UK-centred data arrives before the middle of the week, with unemployment numbers arriving early Tuesday morning. Unemployment is expected to remain at 3.6% overall, but focus will also be on the average earnings index figures, which continue to show a sizeable gap between wages and inflation.
UK GDP for August (month-on-month) is expected to come in flat when released first thing Wednesday. Not great signs for an economy looking to reassure markets it is not in recession, so any dip into the negative will be closely scrutinised.
The Federal Reserve minutes of Wednesday evening will contain the discussions from their last meeting. Powell and his fellow committee members have been relatively open with their thoughts, so these should not show too much surprise. Fed members will watch closely the US inflation and retail sales data, which round out the week on Thursday and Friday respectively.
We remain in very uncertain and volatile times at the moment, with over 2% movements on GBP-EUR and almost 4% on GBP-USD last week. Where things could go this week for sterling will largely be driven by the actions of the Bank of England, whilst the Dollar will be traded based on the releases in the second half of the week.
If you have concerns regarding any upcoming requirements, do reach out to the team to discuss in more detail.
Have a great week.