Good morning
Jeremy Hunt yesterday took apart the Truss/Kwarteng mini-budget that caused so much instability when it has been announced. Somehow Truss is holding onto her job for now, I struggle to see how she can hold any degree of credibility now, be that on the world stage or in front of her own party. One thing is for sure, PMQ this week is going to be an interesting affair. Ideal time for her to get Covid and have to stay away.
The markets in general seem to have found some relief, EU, US equities and Asian equities generally made gains despite the ongoing warnings of further rate rises to come. GBPUSD traded up to 1.1440 yesterday, it has slipped back to 1.1310 this morning but remains well off those worrying lows of two or three weeks ago. We are certainly not out of the woods yet but looking at GBPUSD only does not perhaps show the full picture.
GBP has been performing well across the board, partly due to weakness in other currencies but at least GBP is now not one of those really struggling. Yesterday GBPAUD traded up to 1.8200 for the first time since March, this was down below 1.6000 just three weeks ago. GBPJPY traded over 170.00 for the first time since Feb 2016 and GBPZAR which not long ago was high-18s is now mid-20s.
GBP has declined in recent weeks against EUR, GBPEUR having moved down from almost 1.2000 to trade below 1.0800 but is now back up to 1.1500, just 150-200 points from the sort of level we’d all be saying looked about right for the past eighteen months or so.
All is not lost, but I will add my usual warning that GBP continues to feel vulnerable and we should remain cautious. Plenty more political and economic uncertainty to come, I fear. FT are reporting that BOE will hold off quantitative tightening for a while, giving time for the gilt market to settle down. UK inflation numbers early tomorrow morning could see y/y CPI hit 10%.
Elsewhere, NZ inflation surprised to the upside overnight, RBA minutes showed the Aussie central bank want to fight inflation but are wary of harming the domestic economy. AUDNZD has traded down from near-1.15 at the end of Sept to 1.1075, the last 100 points of that move coming overnight.
Things not looking great in China, millions of citizens in Zhengzhou and Tianjin are reported to be in lockdown, while schools are shut in areas of Shanghai and Guangzhou. Zero-covid policy continues. China data, including Q3 GDP, which you may have noticed has been the calendar a couple of times recently, has been postponed until after the party congress. Does this mean we are set to see some bad numbers?
A light calendar today but in these markets that certainly does not mean we can keep our eye off the ball. Surprises can come from anywhere these days. Be on your guard.
Finally, I read with interest an article suggesting ex-UK and other allied military pilots are heading to China, attracted by large sums of money, to train Chinas own air force. There is obviously some truth in the story even though I strongly hope otherwise. I know money is a big draw but surely there must be rules in place to prevent such things happening, as well as just general sense and decency.
- 10.00 German ZEW
- 17.00 ECBs Scnabel speaks
- 07.00 UK CPI, RPI, PPI
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