Sterling for sale

The pound has steadied somewhat after it fell to a record low against the US dollar early Monday morning in thin Asian trade. It made steady progress throughout the European session, recovering from around 1.03 to above 1.09 - a very wide trading range for a single day. Cable then came off again as the Bank of England responded with a rather timid statement saying it won’t hesitate to raise rates at “its next scheduled meeting”, which rather fell short of what the market was calling for. It said little and praised recent government actions. The Treasury also said there will be more announcements in the coming weeks describing supply side reforms that might sweeten things for the market somewhat. Falling again to 1.0630 yesterday evening, GBPUSD is up to 1.08 this morning. So, steady enough for now – they've bought themselves a bit of time it looks - but few think the pound has made a bottom.  

Gilts recover

Today’s trade is marked by a slight reversal of some of the outsize movements of the last couple of days. UK gilt yields have come off a touch but retained most of the recent spike; the 5yr under 4.4% after touching 4.58% earlier. The 2yr dropped to 4.20% from 4.52%; encouraging signs of more stability within the market. Gilt yields can probably move a bit lower now as markets, in light of the BoE’s position, will need to rethink the kind of 200bps-by-November pricing we saw yesterday. We’re also seeing the dollar move lower – DXY dropping to 113.30 from 114.20 struck yesterday – a cooling in upwards USD pressure that is allowing something of a relief rally for stocks. 

Equities firmer

Equities are stronger today– the FTSE 100 ended yesterday unchanged at 7,020 and is 40 or so points firmer this morning. European indices that had fallen a bit yesterday are making up the ground this morning in early trade with the DAX rallying 1.4% to nudge the 12,400 level again. US futures are firmer by more than 1%. US stocks fell – the S&P 500 posted a new closing low for 2022 and the Dow Jones industrial average fell into a bear market. The S&P 500 declined 1% to 3,655, below the June closing low of 3,666, having fallen as low as 3,644, just 8pts from its intraday low of the year. Futures indicate it will open above 3,700. The Dow also fell 1% to close more than 20% its January high. 

Dollar pulls back

Softer USD means the euro has bounced back a bit with some more hawkish noises from the European Central Bank seeing markets up bets on the pace of rate hikes. Bundesbank President Joachim Nagel said the eurozone risks runaway inflation. "The risk that long term expectations get de-anchored remains high," he said in a speech yesterday. "Further decisive action is required to bring the inflation rate down to 2% in the medium term." 

Coming up today

There is a slew of Fed speakers today starting with Chuck Evans of the Chicago Fed, who’s in London to speak before the Official Monetary and Financial Institutions Forum: "The Future of the U.S. Economy”. Uber-hawk Bullard, San Francisco Fed’s Mary Daly and chair Jay Powell are all due to speak. Also check BoE chief economist Huw Pill who is due to speak later today. For data we look to the US CB consumer confidence, Richmond manufacturing index and new home sale