Economic Update

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Markets in turmoil

Markets in turmoil last week and with the heavy employment data due out of USA this week its unlikely that will change. Stocks had their worst month since March 2020 in September with US core PCE (the FEDS favoured inflation measure) coming in above expectations and that coupled with consumer spending holding up indicates that inflation is more ingrained than thought and thus rates likely to remain high.

Most of the FEDs Governors are to speak over the week and with most agreeing with the Chairman that rates may need to go higher even if it restricts the economy to slow inflation then a stock rally may be capped until the fear of higher rates subsides.

The unemployment data this week is a key indicator as to the general health of the US and thereby its ability to absorb further rate rises so strong data in that area is likely to condemn stocks to a lower range.

GBP had a rollercoaster ride as the government’s seemingly politically inspired, and unfunded tax cuts continued to worry the markets and there was much commentary about the saga even in non economic press.

The governments tax cut (not happening until 2023) caused gilts to sell off hard as the currency dropped as the market was concerned that the Bank of England would need to raise rates as an emergency to “protect” the Pound – many pension funds hold gilts and thus were seriously negatively impacted by the sell off. The Bank of England stepped in to purchase long dated gilts which placated the market in the short term – it also allowed Sterling to recover from record lows against the US$ although we did have a short market so a “short squeeze” was likely and the rally was supported by market speculation that the tax cuts might be reversed; which I find unlikely as this is a new government and that wouldn’t look good to the voters as a first move.

GBP was held up as the economy was expected to contract but GDP actually marginally increased postponing the expected recession. GBP and its related assets continue to look vulnerable with a shaky start to the government and the economy still looking fragile.

Commodities are still struggling as worldwide economic conditions worry investors – oil lost nearly 20% in the last quarter and its doubtful that OPEC+ will sit by and allow the market to find a new, lower, range.

The fact that Russia’s policy towards Ukraine is now meeting internal resistance and they are being pushed back in Ukraine may make a cut in OPEC+ output more likely as the war is expensive and Putin needs oil prices to remain high.

Metals continue to bump along the bottom with supply disruption a never ending concern but with recession ensuring that rallies seem to get snuffed out before they even get started.

Date

Country

Figures

Expected

Previous

Oct 03

Japan

Tankan Large manufacturers

10

9

 

USA

ISM Manufacturing PMI

52.9

52.8

Oct 04

USA

Jolts Job Openings

11.1M

11.239M

Oct 05

USA

ADP Employment

135K

132K

 

USA

Trade balance

-$68B

-$70B

 

USA

ISM

56.9

56.4

Oct 06

EUR

Retail Sales MoM

-2.2%

-0.9%

 

USA

Initial Claims

196K

193K

Oct 07

USA

Unemployment Rate

3.7%

3.7%

 

USA

Non Farm Payrolls

290k

315K

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