UK: What to watch
Oct-21 06:47
- UK political events continue to keep markets on their toes. Looking at current betting odds Rishi Sunak has a slightly greater than evens chance of becoming next PM (57% according to Smarkets). A return for Boris Johnson is now seen as the second most likely option (25%) with Penny Mordaunt at 20%. At this stage it is thought to be very unlikely that any other candidate would be able to receive the 100 votes required from Tory MPs on Monday to formally enter the race.
- Markets will watch these odds through the day with Sunak probably the market's favoured candidate in terms of market stability. However, the Conservative party is so divided at present there are risks for any of the candidates. There have been some media stories overnight that if Johnson wins there could be some resignations from Tory MPs triggering by-elections and potentially reducing the Tory parliamentary majority.
- Last night the Bank of England announced its gilt sales operations for the remainder of 2022. There will be eight sales ops of GBP750mln each over a six week period with an equal number of short and medium operations. MNI had been looking for operations of GBP580-750mln so this is in line with the top end of our estimate. However, the impact on the gilt market is likely to be relatively small.
- After hours today we will see both the S&P and Moody's review their ratings for the UK. S&P (at AA but with a negative outlook) currently rates the UK a notch above Moody's (at Aa3 with a stable outlook). There are risks to both of these from the increase in borrowing costs, political stability and slowing economic growth.
- So far this morning we have seen consumer confidence for October higher than expected and retail sales for September disappointing.
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OUTLOOK: What to watch
Sep-21 06:45
- Early moves have all centered on Putin's speech in which he has announced a partial mobilization - a move that will see around 2 million reservists conscripted and triple the size of the Russian army. This is confirmation that Putin is not going to back down soon and that the war in Ukraine is likely to continue to drag through the winter. The follows some large military gains by Ukraine over the past couple of weeks.
- Risky assets have come under pressure with core fixed income, STIR futures and the USD all moving higher.
- Focus later today will turn to the Fed decision. Markets are pricing in around 79bp at the time of writing for today's meeting with a peak of 212bp of hikes expected by March. With changes to the statement likely to be limited, immediate focus will be on the Dot Plot’s end-2022 median rate forecast and the 2023 “terminal” rate, for which sell-side expectations center on 3.9% and 4.2%, respectively. MNI sees a flatter Fed funds rate “Dot Plot” than consensus, though risks to the 2023 Dot lie to the upside of 4.1%. For the full MNI Fed Preview click here.
USD: EURUSD breaks below 0.9900
Sep-21 06:43
- EURUSD has broken 0.9900 handle, with next support seen at 0.9864 Low Sep 6 and the bear trigger.
- GBPUSD broke support at 1.1324 1.50 proj of the Jun 16 - Jul 14 - Aug 1 price swing, and targets 1.1300 next.
CROSS ASSET: Safer Haven are extending gains
Sep-21 06:34
- USD, CHF, Yen are acting as safer haven following Putin's earlier comments.
- Gold has now gained $10, and WTI is heading towards $86.
- Extoxx (VGZ2) eye the September low at 3423.00
