ACM Update 31-10-22
The switch to Rishi Sunak as PM and Jeremy Hunt as Chancellor seem to have steadied the ship for the pound. This week though, the Bank of England have to thread the monetary policy needle on Threadneedle Street in their latest rate announcement. The Federal Reserve come first on Wednesday, and the latest US jobs data closes out the week.
UK news last week was dominated by the appointment of Rishi Sunak as new PM. He spent his first few days arranging his Cabinet ministers. Jeremy Hunt remaining as Chancellor seemed to give the stability that GBP needed, even if some of the other appointments didn’t go down as well… The positivity behind GBP (combined with a weaker Euro) drove Sterling-Euro to its highest level since 6th September, ironically the day Liz Truss became PM.
Today was initially expected to be the date Jeremy Hunt was to unveil his fiscal plan to get Government finances back on track. This has now been pushed back to 17th November. Probably a wise move, as releasing a horror show like that on Halloween would have made the job of tabloid headline writers very easy.
UK Services and Manufacturing data fell short of expectations on Monday, with the latter showing a figure under 50 (indicating contraction) for the third month in a row. Besides that, it was relatively light on the UK data front.
As mentioned, we do find ourselves in the best position for a while for GBP to Euro clients. Make sure to reach out to the team regarding any requirements in this direction. Recent movements on the pair can be seen in the chart below:
The ECB were the main mover last week, with a (very widely forecast) 75 basis point interest rate rise. They also insisted they will keep printing money to buy bonds until 2024. Europe’s interest rate is now at its highest level since 2009, despite publicised concerns about monetary policy from the leaders of France, Italy and Portugal over the previous few days.
Christine Lagarde stated that “inflation remains far too high and will stay above the target for an extended period”. Figures released during the week showed annualised inflation of 11.6% in Germany, 11.9% in Italy, 7.3% in Spain and 7.1% in France. Overall inflation for the Eurozone released this morning showed a figure of 10.7%.
Over in the US, it was relatively light on the data front. The main takeaway was new home sales data which saw a sizeable slowdown compared to the previous month. This weakened the Dollar on Wednesday afternoon versus GBP and EUR. Unemployment claims remain constant each week (for now) just above the 200,000 figure.
Next week sees the US mid-terms, which is looking like a difficult period to negotiate for Joe Biden. Expect volatility from the Dollar in and around next Tuesday (8th November).
Recent movements on GBP-USD can be seen in the chart below:
Elsewhere, Australian inflation shot up to its highest level in 32 years, with the annual rate now running at 7.3% (up from 6.1%). The Bank of Canada took their foot off the gas slightly in their inflation battle, with a rate hike of just 0.5% versus the 0.75% expected. Canadian rates are now up by 3.5% since March.
In Japan, the Bank of Japan maintained their position of negative rates, despite stagnating growth. Prime Minister Kishida implemented an economic stimulus package of 29.1 trillion Yen ($200 billion) to get the economy (and his popularity) back on track.
The week ahead:
Monday – UK Mortgage Approvals (67,000), EU Inflation Flash Estimate (exp 9.9%, actual 10.7%)
Tuesday – Reserve Bank of Australia interest rate (exp 2.85%, 03:30), FRA & ITA bank holiday.
Wednesday – Federal Reserve interest rate (exp 4.00%, 18:00)
Thursday – Bank of England interest rate (exp 3.00%, 12:00), Andrew Bailey speech (12:30)
Friday – US Non-Farm Payrolls (exp 200k, 12:30), US Unemployment (exp 3.6%, 12:30)
So, the next few days contain some of the most talked about events of any month, in the space of just a few days. The Federal Reserve kick things off on Wednesday evening at the slightly earlier time of 6pm UK, due to the switch back to GMT in the UK over the weekend just gone. Expect another jumbo-sized rate hike from the Fed, but the narrative surrounding their future intentions will be key.
The Bank of England follow suit on Thursday, again we expect a sizeable hike. However should we see an aggressive ongoing stance from the Fed, but a disappointing hike from the Bank of England, there is a possibility for substantial movements in Sterling-Dollar. Equally, the Friday jobs number will be just as important.
Do reach out to the team this week if you have any specific requirements you wish to discuss.
Have a great week.