“The monetary policy announcement by ECB and BOJ this week will steal the spotlight. A second consecutive 75bps rate hike is largely expected by the European central bank this Thursday, which would result in a 1.5% increase in the Depo-rate and would entail some event risk for the euro. In the US, Q3 GDP and core-PCE inflation readings for September are due. A strong GDP growth and higher inflation reading should provide further support to the dollar.”
Main Headlines
President Biden said yesterday that he hopes voters focus on his “energy level” and not his age if he decides to run for re-election in 2024. Biden, who will turn 80 next month, said last week it is his “intention” to run again in 2024, but he has not made a formal decision yet. He is the oldest president in history and would be 86 at the end of a second term. In a New York Times/Siena College poll published in July, roughly 64% of surveyed Democratic voters said they believe the party should nominate a different candidate for president in 2024. 33% listed Biden’s age as their primary reason, while 32% said it had to do with his job performance.
Rishi Sunak is expected to be confirmed as the new leader of the UK Conservative Party and British prime minister later today. It comes hours after Boris Johnson pulled out of the leadership race, after securing the public backing of 59 party MPs, far short of the 100 required to be included on the ballot. His withdrawal leaves the path open for Sunak, who has around 150 backers, a significant lead over rival Penny Mordaunt, who has 25. If both secure support from at least 100 MPs by this afternoon, Conservative Party members will have the chance to vote for their preferred candidate. However, if Mr Sunak is the only one to reach this threshold, he will automatically become the UK’s third prime minister this year.
Markets
European markets opened higher this morning, with UK politics expected to settle as the ruling Conservative Party picks a new prime minister following the resignation of Liz Truss last week. The Stoxx 600 was up 1.3% in early deals. All sectors and major bourses opened higher, with chemicals leading gains with a rise of 1.6%. Food and beverages and health care were both up more than 1.2%. In the US, stock futures were little changed this morning after all three major averages notched their best week since June at Friday’s close. Shares in the Asia-Pacific were mixed, but Hong Kong’s Hang Seng index plunged about 6%, with the Hang Seng Tech index down more than 8%.
GDP
Sterling is well bid against most major currencies overnight. The pound has gained on the dollar as Boris Johnson dropped out of the Tory leadership race, leaving Rishi Sunak as the favourite to become prime minister. This morning, sterling stood around 0.4% higher at $1.134. Meanwhile, government borrowing costs dropped as the markets opened after the weekend. Former chancellor Mr Sunak is now the only candidate backed by more than 100 Tory MPs, the level required to take part in the ballot of party members. Last month, sterling plunged to a record low against the dollar and government borrowing costs rose sharply in the aftermath of outgoing Prime Minister Liz Truss’s mini-budget.
EUR
Euro is weaker than most major currencies in the early morning trade. Germany’s economic downturn deepened in October, the flash S&P Global composite purchasing managers’ index showed this morning as its reading fell to 44.1 from 45.7 in September, the lowest since May 2020, when the country was under a COVID lockdown. High energy costs were a major factor, especially in manufacturing, where the rate of contraction was at its fastest in two-and-a-half years, though manufacturing was also hit by weaker demand, S&P Global said. The flash manufacturing PMI fell to 45.7 from 47.8 the month before.
USD
The dollar is stronger against euro and weaker against sterling this morning. Brian Deese, Joe Biden’s top economic adviser said the US economy had the “strength and resilience” to shield it from a recession, brushing off growing concerns that steep interest rate increases designed to fight inflation would quash the expansion. Nearly every CEO expects a recession to the hit the US in the next 12 to 18 months. Elon Musk and Jeff Bezos say it is already too late to avoid one. Amid such warnings, optimistic messages from the White House can be jarring. Last weekend, Biden told reporters, “Our economy is strong as hell.”
Ballinger & Co. Market Analysis– 24th October 2022
Today’s Rates
GBP>EUR – 1.1513
GBP>USD – 1.1306
EUR>USD – 0.9820
GBP>CAD – 1.5516
GBP>AUD – 1.7964
GBP>SEK – 12.746
GBP>AED – 4.1516
GBP>HKD – 8.8750
GBP>ZAR – 20.745
GBP>CHF – 1.1332
Today’s Calendar
· 7:00 a.m.: Finland Sept. S&P PMIs
· 9:15 a.m.: France Oct. PPI
· 9:30 a.m.: Germany S&P/BME PMIs
· 10:00 a.m.: Euro-area Sept. PMIs
· 10:30 a.m.: UK Oct. S&P/CIPS PMIs
· 11:30 a.m.: EU to sell bonds
· 2:50 p.m.: France to sell bills
· Liverpool dockworkers begin a strike
This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited/Manor House Foreign eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result. Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.