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Wednesday, October 12, 2022, 8.45am GMT
A deputy head of the Zaporizhzhia nuclear power plant in Ukraine was kidnapped by Russian forces and is being detained in an unknown location. The safe-haven US dollar traded higher on the news.
Thailand’s consumer confidence index rose to an eight-month high of 44.6 in September, from 43.7 in the previous month. Despite this, the THB/USD forex pair remained under pressure.
Japan’s core machinery orders fell 5.8% in August, declining to its weakest level in six months, which sent the JPY/USD pair lower in forex trading this morning.
Bank of Korea raised its base rate by 50bps to 3.0% at its October meeting, lending support to the KRW/USD forex pair.
US consumer inflation expectations for the year ahead fell to 5.4% in September, from 5.7% in the previous month. The Dow Jones index closed slightly higher on Tuesday.
What’s happening: The British pound recorded losses against the US dollar on Wednesday.
What happened: Although the sterling had made some recovery in early trading on Tuesday, it fell sharply later in the session and extended its downturn this morning.
Investors moved to the sidelines after the Bank of England announced another intervention in the country’s bond markets.
Why it matters: The Bank of England stepped into the country’s government bond markets again with the aim of restoring order in the chaotic debt market.
The BoE announced plans to widen its purchases of UK government bonds to include inflation-linked bonds from October 11 until October 14.
“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” the central bank said in a statement.
At the first sale on Tuesday, the bank purchased inflation-linked debt worth £1.947 billion. The BoE had already increased the limit for its daily gilt purchases to ensure a smooth end to its emergency buyback plan that ends on Friday.
On September 23, British finance minister Kwasi Kwarteng announced a package worth £45 billion in unfunded tax cuts, which resulted in a sharp decline in the sterling.
Gilt yields climbed to their strongest level in several years, forcing the intervention by the BoE. Although Kwarteng later scrapped the plans to abolish the top rate of tax, the sterling remained under pressure amid economic growth and inflation concerns.
Data released today showed the UK unemployment rate declining to 3.5% in the three months to August, its lowest level since 1974. Average weekly earnings, excluding bonuses, climbed by 5.4% in the three-month period.
The GBP/USD had dipped to a record low of 1.0327 on September 26 but rebounded sharply in the days to follow. However, the British currency has lost around 19% year to date.
The GBP/USD forex pair fell 0.26% to 1.094 this morning, hitting a fresh two-week low, after rising around 0.8% in early trading on Tuesday. The FTSE 100 shed 74.08 points, or 1.06% to close at 6,885.23 on Tuesday.
What to watch: Traders await the release of economic reports on GDP, industrial production and balance of trade from the UK today. The British economy, which grew 0.2% in July, is expected to expand by 0.1% in August. Analysts expect industrial production to rise 1.3% in August, following 1.1% growth in the previous month. The UK trade deficit, which shrank to £7.8 billion in July, is projected to widen to £8.4 billion in August.
Context: US stocks settled mixed on Tuesday, after recording sharp gains earlier in the session.
Details: Investors await the key inflation reports due this week, which will be considered by the Federal Reserve in its rate hike decisions ahead.
The third-quarter earnings season is also scheduled to commence this week, with four of the world’s biggest banks, namely JPMorgan Chase, Morgan Stanley, Wells Fargo, and Citigroup, set to report earnings on Friday.
Investors also responded to the IMF’s release of expectations for the global economy, which showed the projection at 3.2% this year, in line with the July projections. However, the IMF lowered its GDP growth forecast from 2.9% to 2.7% in 2023 due to rising macro headwinds.
On the economic data front, the NFIB Small Business Optimism Index improved to 92.1 in September, from 91.8 a month ago, and hit a four-month high.
Wall Street ended Monday’s session in the red, with the Nasdaq 100 hitting a two-year low. Stocks settled mixed in another volatile session on Tuesday after the Dow Jones index jumped more than 300 points earlier in the session.
The Dow Jones index added 36 points, or 0.12%, to close at 29,239.19 on Tuesday, driven by gains in the shares of Amgen and Walgreens Boots Alliance. The S&P 500 fell 0.65% to 3,588.84, reaching its weakest level since November 2020 earlier in the session. The Nasdaq 100 dipped 1.24% to settle at 10,791.35, with a decline in the shares of Meta Platforms and other tech majors.
What to watch: Investors await data on producer price inflation from the US today. The core Producer Price Index for final demand in the US had risen by 0.4% in August and is expected to rise by 0.3% in September. The release of minutes from the FOMC’s latest meeting will also remain in focus today.
Other Markets: European trading indices closed lower on Tuesday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.43%, 0.13% and 0.56%, respectively.
|Technical Levels||News Sentiment|
|USD/JPY – 146.16 and 146.24||Positive|
|GBP/USD – 1.0938 and 1.0952||Positive|
|Gold – 1670.81 and 1672.71||Positive|
|Copper – 3.4084 and 3.4152||Positive|
|Nasdaq 100 – 10755.88 and 10816.55||Negative|
|Futures at 0400 (GMT)|
|EUR/USD (0.9717, 0.10%)||Dow ($29,313, 0.16%)||Brent ($93.68, -0.7%)|
|GBP/USD (1.1010, 0.38%)||S&P500 ($3,605, 0.17%)||WTI ($88.62, -0.8%)|
|USD/JPY (146.19, 0.22%)||Nasdaq ($10,870, 0.23%)||Gold ($1,672, -0.8%)|
Japan’s machine tool orders, UK’s construction output, goods trade balance and manufacturing output, Turkey’s industrial production and retail sales, Eurozone’s industrial production, Mexico’s industrial production, US MBA mortgage applications and API crude oil stocks change, India’s Industrial production, manufacturing production and inflation rate, as well as Indonesia’s total car sales.
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