Olivia

Early European hours observed UK inflation data hit the wires. Inflation is now in excess of five times the Bank of England’s (BoE) target; the Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) jumped 11.1%, clocking a 41-year pinnacle. This is up from the 10.1% increase in September. Month-on-month CPI inflation also increased by 2.0%, up from September’s 0.5% increase. In terms of the year-on-year core readings (excluding food, energy, alcohol and tobacco), the release recorded a 6.5% rise, identical to September’s increase. This hotter-than-expected inflation reading, of course, emphasises the possibility of further interest rate hikes by the BoE (next meeting is on 15th December). Note that the central bank raised the Bank Rate by 75 basis points on 3rd November to 3.0%. According to the futures markets, there is currently a 53.6% chance the BoE hikes by 50 basis points at the next meeting, with a 46.4% probability of another 75 basis-point hike. The ONS said: In October 2022, households are paying, on average, 88.9% more for their electricity, gas, and other fuels than they were paying a year ago. Domestic gas prices have seen the largest increase, with prices in October 2022 being… Read More »UK’s autumn budget eyed

We saw another decent session for markets in Europe yesterday, after US PPI followed CPI last week in coming in lower than expected, although the FTSE100 underperformed after the pound briefly surged to the 1.2000 level against the US dollar. US markets also underwent another solid session however the gains were tempered somewhat by reports that two Russian missiles had landed in Poland, killing two people in the process. Russia has denied the allegations; however, the incident has raised the temperature given Poland is a member of NATO, and a deliberate attack could prompt a counter-response from other NATO members under article 5 on mutual defence. As a result of this elevated uncertainty, and the ongoing investigation as to who might be responsible, European markets look set to open lower this morning While US inflation appears to be in decline the same can’t be said for inflation this side of the Atlantic, where it has continued to push higher, although inflation in the UK did get a bit of a respite in August, falling back to 9.9%, from 10.1% in July. This didn’t last long as prices edged back to 10.1% in September, with food prices continuing to act as… Read More »UK inflation expected to rise to 10.7%

Retail Sales in the US are expected to rise by 1% following a stagnant September. Risk perception is likely to continue to drive the US Dollar’s (USD) valuation. Market participants will pay close attention to the Q3 earnings reports of big retailers.  Retail Sales in the United States (US) are forecast to rise by 1% in October after staying unchanged at $684 billion in September. The US Dollar (USD) has been struggling to find demand following the softer-than-expected Consumer Price Index (CPI) figures for October and the Retail Sales report is unlikely to impact the USD’s valuation in a meaningful way. According to the CME Group FedWatch Tool, the probability of a smaller, 50 basis points (bps), Federal Reserve rate increase in December stands at 80%, up significantly from 50% before the October inflation report. Although some FOMC policymakers urged markets not to get ahead of themselves by pricing in a less aggressive tightening outlook, the sharp decline witnessed in the US Dollar Index showed that investors had been looking for an opportunity to unwind crowded Dollar longs. Market implications Since the US Census Bureau’s Retail Sales data is not adjusted for price changes, it will not offer an accurate… Read More »US October Retail Sales Preview: US Dollar unlikely to find reprieve

Markets Just when headlines started to become less frequent and noisy, the situation in Eastern Europe escalated when reports of a Russian missile entered Poland and killed two people. Poland announced they were thinking about evoking article 4 of the NATO agreement, which means they want to talk about it formally and perceive it as the first escalation point. NATO must digest this grave situation before allies move into combat readiness. Even if the missiles that crossed the Polish border were indeed deemed Russian and not Ukrainian anti-missile interceptors, the case would fall short of triggering an escalation at this point; hence the markets are deferring to a wartime mistake believing this to be a case of misfire. The action kicked off the safe-haven trade, driving bond yields lower and firming the US dollar up as traders moved back into wartime headline watch. And US stocks closed off their highs after the report.  As headline cautious investors may be, the immediate follow-through does not suggest increasing market escalation expectations. Beyond a 1.4% rally in EURPLN, the cross-asset impact is not apparent. If traders were even contemplating a full-blown escalation, the landscape would be much more crater-like  While the market is… Read More »Geopolitical Risk Ratchets UP: Impact on Oil-Markets & Forex

The Euro has lost some ground against the US dollar after reports that Russian missiles had struck inside the Polish border killing two polish citizens. The reason for the drop in the Euro is because Poland is a NATO member and the potential results of this, yet unverified report, is a retaliation from Polish and/ or NATO forces. Poland has previously noted that they are ready to defend their sovereignty in the face of accidental or purposeful attacks within its borders which could induce NATO forces to join in on the conflict too. NATO and US authorities are currently investigating the report before commenting publicly. It could be that markets wait for confirmation from these two authorities before considering their risk appetite for the Euro the rest of this week. EUR/USD 1H The Euro is still up against the greenback but was registering greater gains before the missile report hit the news flow. The reason for the strength in the Euro is due to the US Producer Price Index (PPI), a measure of wholesale inflation, coming in softer-than-expected. October’s PPI rose +0.2% month-over-month in October of 2022, below market forecasts of +0.4% adding fuel to the theory that inflation in… Read More »PPI data and wayward projectiles impacting EURUSD

Commodity prices across the board have made an explosive start to the month – registering their biggest back-to-back weekly gains on record since 1960. So far this quarter, a total 27 Commodities ranging from the metals, energies to agriculture have tallied up astronomical double-digit single day gains – not once, not twice, but on multiple occasions – outperforming every other asset class out there. Just take last week for example – every possible commodity imaginable from Aluminium, Copper, Palladium, Platinum, Gold, Silver, Lumber, Zinc, Crude Oil to Natural Gas prices surged following Thursday’s U.S Consumer Price Inflation data – with a long-list chalking up spectacular gains of 10% or higher – literally in a single day! The exact same thing happened in the previous week, following the U.S employment report. And yes, you guessed it – the week before that too following the Bank of Japan’s currency intervention. As a result, there’s really nothing historical you can point to for what’s going on in markets today. We are routinely seeing Commodities across the sector whip up spectacular back to back gains of 10% or higher, almost on a weekly basis – fuelling an era of enormous wealth creation like we… Read More »Commodity prices score biggest weekly gain since 1960 – What’s next [Video]

This week, Cable traders will have a lot to look at. Of course the big event later in the week is the long anticipated Autumn Budget that is expected to be released on Thursday. It’s not expected to be such a controversial affair this time around, but there are still some pending issues that could shake up the markets. And pending nervousness after what happened last time a new Chancellor announced a spending plan. The main issue is how will Chancellor Hunt balance the books over an expected shortfall of £60B due to slower economic outlook and increasing costs. What has been leaked so far suggests that it will be a combination of higher taxes and spending cuts. While these measures are generally understood to weigh on economic growth, they are also expected to help with the inflation situation. It’s stagflation now What happens with the budget is particularly relevant for the BOE, since it is facing something of a crossroads. After UK GDP came in negative for the third quarter, it’s expected to show the beginning of the prolonged recession the BOE anticipated. The BOE is also forecasting that inflation will remain in the double digits for a couple… Read More »The UK October data barrage

Bond market returns for 2022 have been horrific, right along the credit curve. For 2023, returns will be helped by a higher starting running yield, and subsequent falls in market rates. Bonds will be a good place to be, especially higher on the credit spectrum. Brace for a reduction in liquidity and more available collateral as key themes, too. The energy crisis this year saw us drawing parallels to the 1970s and 80s. Dollar strength was a net outcome as the Volcker years generated high real rates to kill inflation. The collapse in tech stocks, meanwhile, has struck a similar chord to the dot com boom and bust of 1999/2000. That period also saw the dollar in vogue. And as we pick through the bones of the 2019/20 pandemic fallout, we're reminded of the great financial crisis in 2007/08, as housing markets suffer intense pressure. So many parallels, but none are perfect. Our story for 2023 draws on these, with a modern twist. As we know, history doesn't repeat itself but it often rhymes. Inflation and the Fed funds rate back to the 1970s (%) Source:  Refinitiv, ING So what do we see? The Federal Reserve, the European Central Bank… Read More »Rates outlook 2023: Belt up, we’re going down

AUDUSD Current Price: 0.6719 Chinese news keep investors on their toes at the beginning of the week. US Dollar on the back foot amid speculation the US Federal Reserve will pivot. AUDUSD´s bullish potential intact, with near-term support in the 0.6660 price zone. The AUDUSD pair is ending Monday with modest gains in the 0.6710 price zone, pressuring a fresh November monthly high. The pair slid throughout the first half of the day amid US Dollar near-term oversold conditions. Nevertheless, speculative interest saw it as a chance to short further the greenback, which somehow anticipates how things will go, at least until the next US Federal Reserve (Fed) meeting in a month. Hawkish comments from Fed officials may be ignored by market players unless Chief Jerome Powell explicitly says that December will bring a 75 bps rate hike. The focus at the beginning of the day was on China, as the country keeps reporting record coronavirus contagions in Bejing and other big cities. The country has a zero-covid policy, which may lead to stricter lockdowns and the interruption of global shipments. The country reported the October Producer Price Index, which printed at 4.9% YoY, easing from the previous 5.4%. The Australian… Read More »AUDUSD Forecast: Bulls happily adding at lower levels

All eyes on Westminster as we wait to see if Hunt will quell market concerns on the UK's fiscal outlook  As FX trading gets underway in Asia late on Sunday, the dollar has slipped yet again, which is a continuation of the move from last week, when the dollar fell 3.5% on a broad-basis and US stocks surged 6%. The market mood appears upbeat as we start another week, as expectations of a Fed pivot, China dropping its zero covid policy and the Russian withdrawal from the strategically important Ukranian city of Kherson all helping to boost sentiment. The key driver for risk sentiment remains weaker US inflation data, which focussed minds on the longed-for pivot from the Fed to smaller rate increases. This narrative was given a boost on Friday when the University of Michigan consumer confidence indicator for the US came in lower than expected across all measures for November. Right now, weaker data is good news for the market as a slowing economy also builds the case for a Fed pivot. As we start a new week, the UK Chancellor’s Autumn Statement (and UK Budget version 2) is scheduled for Thursday, UK inflation is released, along with a… Read More »A weak start for the dollar as we wait for key economic releases and UK budget