October 10, 2022 7:58:47
The start of the week has seen equities tumbled across the Far East as concerns over rising interest rates and recessionary fears weigh on risk sentiment. In China, reports of a rebound in Covid cases have added to the downbeat tone set by the drop in the Caixin services PMI below 50 in September, reported early on Saturday.
Meanwhile, the Bank of England announced additional measures this morning to support ‘market functioning’. For the remaining five auctions of its temporary long-dated UK government bond buying programme, the Bank will increase the maximum size of each from £5bn up to £10bn, with each day’s limit set daily at 9am. Alongside which, the Bank has also launched a Temporary Expanded Collateral Repo Facility, which will run beyond this week and facilitate commercial banks to help ease liquidity pressures for LDI funds
Despite some soft economic data in the US – including the ISM manufacturing survey, construction spending and job openings – the Fed has shown little sign of swaying from its intention to rates further. Data last Friday showed the US economy added a further 263k jobs in September while the unemployment rate fell back to 3.5% from 3.7%, and are likely to keep Fed members in a hawkish mood and the FOMC minutes later this week will principally be watched for clues on how much further interest rates are likely to rise (the dot plot suggests another 150bp in total), including what to expect for the update on 2 November. Markets have almost priced in another 75bp increase for the next meeting. The US bond market is closed today for Columbus Day holiday and there are no major data releases due in the US. However, Fed members Evans and Brainard are set to speak at the NABE conference in Chicago.
There is a noticeable lack of key economic data releases in the UK and Eurozone too, leaving today’s focus across Europe on ECB speakers Centeno, de Cos and Lane. With Eurozone CPI inflation at 10.0% in September, the ECB is set to continue raising interest rates in upcoming meetings, including the possibility of another 75bp hike on 27 October, despite business survey evidence pointing to a loss of economic momentum and the possibility of contraction in Q3.
Against the current backdrop of elevated inflation, rising central bank policy interest rates and slowing economic growth momentum, the IMF/World Bank joint meeting kicks off in Washington, running through to Sunday (16th). IMF forecast updates are due tomorrow.
Early tomorrow morning, the ONS will publish its latest UK labour market statistics report. Recent monthly figures have pointed to some weakening in employment. Nevertheless, the indications are that the labour market remains tight, with unfilled vacancies still high and the unemployment rate falling to a 48-year low of 3.6%, led by more people becoming inactive, due in part to a rise in long-term illness. We forecast a fall in employment of 200k on a 3m/3m basis and for the unemployment rate to hold at 3.6%.
The US dollar remains on the front foot, which has pushed GBP/USD back below 1.10. Front-month Brent crude oil prices are also trading close to $100 p/b following OPEC’s decision last week to cut oil production.
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