October 11, 2022 7:29:22
Most Asian equity markets are down sharply this morning. Concerns about global growth and a possible escalation in the Russia-Ukraine conflict have been cited as reasons. The IMF and World Bank yesterday warned of the growing risk of a global recession. The IMF’s Managing Director said that while the US labour market is still strong it is losing momentum. The British Retail Consortium estimated that retail sales rose in September on an annual basis but fell in real terms as inflation impacted on spending.
Just released data for the UK labour market showed that employment fell by 109k in the three months to August. Despite that the unemployment rate edged down to a new low of 3.5%. Moreover, the tight labour market still seems to be lifting wages with the latest data for the three months to August showing earnings excluding bonuses 5.4% higher than a year ago, up from 5.2% previously.
UK parliament returns from recess today and Chancellor of the Exchequer Kwarteng is scheduled to answer questions. Yesterday’s announcement that the timing of the release of the government’s Medium Term Fiscal Plan has been brought forward to 31st October means that he will not face calls to do that today. However, he still seems bound to be asked about what areas of public spending he plans to cut to offset the impact on the public finances of his recently announced measures. The Institute of Fiscal Studies says that he needs cuts of £60bn to stabilise debt as a percentage of GDP by 2026/27.
Bank of England Governor Bailey is also scheduled to speak today. That is part of an international event as the semi-annual IMF/World Bank meetings for senior global policymakers begin and so he may not see it as an appropriate forum to talk in detail about the UK. Nevertheless, markets will be looking for clues on the BoE’s policy intentions. Meanwhile, the IMF will issue an update of its economic forecast and that is likely to show downward revisions to growth expectations across the globe.
The early Wednesday release of August UK GDP data is forecast to show a monthly fall of 0.1%. Services probably contracted reflecting the impact of strikes and a fall in retail activity, while maintenance in the oil and gas sector may have dragged down industrial production.
Global bond yields rose yesterday with UK gilt yields coming under particular pressure. Ten-year gilt yields touched above 4.50% for the first time since the BoE’s announcement that it would temporarily buy gilts. That programme has now been extended to index-linked gilts, but it is still set to end after Friday. In currency markets the US dollar has continued to rise overnight and sterling has touched below 1.10 versus the greenback.
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