IFX Market Report: Friday 30th September 2022

The United States have entered recession as GDP figures released yesterday show. The American economy contracted by -0.6% in Q2, after a -1.6% contraction already in Q1. Unemployment claims rose to 193,000 last week, against 215,000 expected and 209,000 (revised from 213,000) the previous week. The American economy remains largely affected by the supply issues caused by the strict Chinese measures against Covid that saw production hubs halted as entire cities were on lockdown. Inflation remains high at 8.5% and hurricane Ian already caused the worst floods in Florida in 500 years, with over a dozen casualties already reported.

The United Kingdom on the other hand sees GDP figures surprisingly come out better than expected with a 0.2% growth in Q2 despite a -0.1% contraction expected. Year-on-year GDP growth is also above expectation with a 4.4% growth against a 2.9% growth expected. However, the housing market sees the Nationwide HPI index show that the average house price has gone by 9.5%, a sign that inflation is affecting the housing market directly, with mortgages and interest on the rise with higher interest rates from the Bank of England.

The energy ministers of the European Union member-states are meeting up in Brussels this morning as inflation soars to their highest levels since the 1980s. German inflation reached double digits with 10% in September, Belgium sees inflation rise even higher to 11.3%, Spain sees inflation top 9% and France remains the least affected country in Europe with “only” a 6.2% annual inflation. With suspected sabotage manoeuvres on the Nord Stream pipelines in the North Sea, European countries need more than ever to diversify their energy supply chains, and this morning's meeting between the energy ministers will have the goal of trying to find common ground and set up a price cap on gas prices.

NATO is also set to meet today in Brussels with the suspected sabotage of the pipelines between Denmark and Sweden. The pipelines were used as gas storage for Germany as they were full. Germany has been stocking up on gas ever since Russia has decreased and then eventually stopped gas supplies to Europe, arguing western sanctions were affecting its ability to supply Germany. NATO suspects the sabotage to have been performed by Russia, while Russia blames the United States, who have long been opposed to a pipeline between Germany and Russia.

Cable benefited from reassured investors after the BoE’s intervention. GBPUSD opened at 1.0886 and closed at 1.1115 with the pair opening this morning around 1.1170

GBPEUR followed a similar trend as it opened at 1.1186 and closed at 1.1321.

EURUSD saw the regain some momentum with a supportive speech from Christine Lagarde yesterday, indicating that interest hikes are likely and may well reach 50 basis points. EURUSD opened at 0.9735 and closed at 0.9814.

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