IFX Market Report: Friday 14th October 2022

Yesterday saw the pound jump by 2% to 1.1381 amidst reports the government may reverse part of its “mini-budget” proposals, with the cut to corporation tax and dividend taxes in sight. Prime Minister Liz Truss repeatedly supported her chancellor’s plan and has stated multiple times she was committed to the full package, even at the Conservative party convention on 2nd October in Birmingham, before Chancellor Kwarteng announced the very next day abandoning the scrapping of the 45% rate tax income on earnings above £150,000 a year. This morning, the Chancellor reportedly cut short a trip to the United States to hold emergency talks over the mini-budget, and the reversal announcements could be made today.

The government’s proposal has led the Bank of England to intervene 3 times already in recent weeks by launching a £65bn bond-buying scheme which was expanded twice to save the gilts market, which are yields on government bonds, the tool Truss’ government expects to leverage to finance her “growth” plan. Bond yields soared in the last two days as the latest BoE Governor Andrew Baily confirmed the emergency support package announced Monday would be withdrawn this Friday, leaving yields to rise to 5% for the first time since the Bank intervened. We now await inflation figures next week for the United Kingdom, with expectations set on a 10.2% CPI for September, up from 9.9% in August.

The United States saw their CPI figures released yesterday with inflation very slightly decreasing to 8.2% in September from 8.3% the month before. However, the figure remains alarmingly high and with the recent OPEC+ decision to cut oil output by 2 million barrels a day to drive prices up, this will cast concerns inflation could go back up again in the coming months. Saudi Arabia released a statement yesterday as tensions between Riyadh and Washington soared in the wake of the announcement. The Saudi government said in its statement that the Biden administration asked the OPEC+ decision to be delayed by a month, which would effectively make it come into place after the mid-terms, while the White House accuses the Saudi Kingdom of aiding Russia’s revenues and hampering the impact of Western sanctions as a result of the war in Ukraine.

Some European countries have also seen their inflation figures released yesterday and this morning. Germany sees inflation reach 10.0%, while France and Spain have seen inflation slow down to 5.6% and 8.9%. Both countries have struck deals with alternative gas supplies such as Qatar and Algeria to steer away from Russian gas.

Cable rose by +2.04 % yesterday. GBPUSD opened at 1.1106 and closed at 1.1329.

GBPEUR followed a similar trend as it also rose by +1.36%. The pair opened at 1.1442 and closed at 1.1585.

EURUSD also saw the Euro jump by 0.71% as the rate opened at 0.09702 and closed at 0.9773.

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