IFX Market Report: Thursday 8th September 2022

On Thursday UK Prime Minister Liz Truss announced a broad stimulus package to help households and businesses with soaring energy bills and to attract investments in the energy sector. She announced that energy bills would be capped at £2500 per year for the average household for the next two years. Businesses will get an equivalent guaranteed cap for the next 6 months, and further support will be put in place for vulnerable industries like hospitality. The total cost for the package will be unveiled later this month by Chancellor Kwasi Kwarteng but estimates believe the total package is worth around £140bn with an additional £40bn to come in a business support package in the form of tax cuts.

The European Union is also facing a major inflation crisis with a reading for 9.7% in August for the Eurozone. The number is likely to set the ECB for more aggressive hike rates, with the previous being of only 25 basis points. Markets are now expecting a 75 basis points interest rate hike, more in line with what has been done by the Fed and the Bank of England already a few times this year. Furthermore, with Russia’s halting the supply of gas via its Nordstream 1 pipeline due to Western sanctions, gas prices are certain to rise even more, after already being multiplied by 5 between January 2021 and July 2022.

However, the Eurozone saw positive figures yesterday with Q2 GDP coming out at 0.8% growth, with a 4.1% year-on-year growth. Industrial production in Germany also decreased by less than anticipated at -0.3%.

The World Trade Organisation has released its latest “Goods Trade Barometer”, a study of the volume of world merchandise trade and latest show that year-on-year growth is slowing down as data for Q1 2022 sits at 3.2%, lower than the 5.7% of Q4 2021. Freight rates have continued to fall down with disruptions from the pandemic in China as the country applies a zero-covid policy that saw major cities locked down (the latest one being Shenzhen), but also due to the war in Ukraine which has seen sanctions applied to Russia freeze cargos from both Moscow and Kyiv.

Cable saw GBP regain slightly, continuing a positive trend this week. GBPUSD opened at 1.1523 and closed at 1.1546.

GBPEUR saw a big gain for the for the Euro yesterday as GDP figures for the EU showed good results. The pair opened at 1.1631 and closed at 1.1523.

EURUSD followed a similar trend. The pair opened at 0.9904 and closed at 0.9999 yesterday.

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