Sterling is in free fall today as markets reacted negatively to the new government’s ‘mini budget’. The sell-off came after Finance Minister Kwasi Kwarteng announced plans to cancel a planned corporate tax hike, reverse a recent personal income tax hike and cut taxes on companies in designated investment zones. The Swiss Franc is currently the day’s biggest gainer, followed by the Dollar.
In Europe, the FTSE is down -1.84% at the time of writing. The DAX fell by -1.47%. CAC is down -1.61%. Germany’s 10-year yield is up 0.0182 to 1.986. Earlier in Asia, Hong Kong HSI fell -1.18%. China Shanghai SSE fell -0.66%. The Singapore Strait Times fell -1.10%. Japan was on vacation.
Retail Sales in Canada fell -2.5% MoM in July
Retail Sales in Canada fell -2.5%m/m to CA$61.3 billion in July, worse than expectations of -2.0%m/m. This is also the first decline in seven months. Sales fell in 9 out of 11 subsectors, accounting for 94.5% of retail. The decline was caused by lower sales at gas stations and apparel and apparel accessory stores. Excluding Gasoline, Auto & Parts, sales declined -0.9%.
According to preliminary estimates, sales in August recovered by 0.4% compared to the previous month.
Eurozone composite PMI fell to 48.2, recession in sight
The euro-zone manufacturing purchasing managers’ index fell to 48.5 in September from 49.6, a 27-month low. PMI Services fell to 48.9 from 49.8, a 19-month low. The composite PMI fell to 48.2 from 48.9, a 20-month low.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “A eurozone recession is looming as companies report deteriorating business conditions and mounting price pressures linked to rising energy costs.
“Early PMI readings point to an economic contraction of 0.1% in the third quarter, with the rate of contraction accelerating in the three months to September to signal the worst economic performance since 2013, excluding the months of the pandemic lockdown. “
Germany’s manufacturing PMI fell to 49.1 in September from 48.3, a 27-month low. PMI Services fell to 45.4 from 47.7, a 28-month low. The PMI Composite fell to 45.9 from 46.9, a 28-month low.
France’s manufacturing PMI fell to 47.8 in August from 50.6, a 28-month low. PMI Services improved to 53.0 from 51.2. Overall, the PMI Composite rose to 51.2 from 50.4.
UK composite PMI fell to 48.4 as economic woes deepened
The UK Manufacturing Purchasing Managers’ Index improved to 48.5 in September from 47.3. But the services PMI fell to 49.2 from 50.9, a 20-month low. The PMI Composite fell to 48.4 from 49.6, a 20-month low.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“Economic woes in the UK intensified in September as falling business activity suggests the economy is likely to be in recession. Firms are reporting that rising living costs linked to the energy crisis and growing concerns about the outlook are dampening demand and pushing production levels to levels not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock.
“Meanwhile, the future indicators continued to deteriorate in September. Both orders and future expectations have fallen to levels rarely weakened in the past and are consistent with a deepening downturn heading into the fourth quarter.
“Inflationary pressures remain higher than at any time in over two decades of pre-pandemic survey history. Renewed supply shortages, rising energy prices and rising import costs linked to the weakening pound are adding to cost pressures, meaning the headline inflation rate signaled will remain a major concern for Bank of England policymakers. However, the adverse effects of policy tightening in a recession are becoming increasingly evident, with the downturn likely to deepen as we head into winter.”
UK Gfk Consumer Confidence fell to a new record low of -49
UK Gfk Consumer Confidence fell further in September from -44 to -49, another record low since 1974. Personal Financial Situation fell by -9 points to -40 over the next 12 months. The general economic situation over the next 12 months fell -8 points to -68. The main purchasing index remained unchanged at -38.
“Consumers are collapsing under the pressure of the UK’s growing cost-of-living crisis, which is being fueled by soaring food prices, domestic heating costs and mortgage payments. They wonder when and how the situation will improve.” Joe Staton, client strategy director at GfK, said.
Australia’s composite PMI edged up to 50.8, which risks going into contraction territory
Australia manufacturing PMI rose to 53.9 in September from 53.8. PI Services also rose slightly from 50.2 to 50.4. The PMI Composite Output rose to 50.8 from 50.2.
Laura Denman, economist at S&P Global Market Intelligence, said: “September data suggests that the RBA’s recent rate hikes have started to have the desired effect in terms of prices…. At the same time, the private sector remains in the expansion zone, the pace of growth has even accelerated slightly…
“On the downside, the full impact of the recent rate hikes will be delayed… Should the RBA continue to hike interest rates, the private sector economy could risk slipping into contraction territory going forward as disposable incomes across the nation are tight and general Demand conditions remain subdued.”
GBP/USD Midday Outlook
Daily Pivots: (S1) 1.1190; (P) 1.1277; (R1) 1.1342; More…
GBP/USD dips down to 1.1019 so far and meets 61.8% forecast 1.3748-1.1759 from 1.2292 at 1.1063. there are no signs of bottoming out yet. Intraday bias remains on the downside for 100% forecast at 1.0303. On the upside, minor resistance above 1.1210 will neutralize the intraday bias and bring consolidation first before staging another decline.
Overall picture based on recent momentum decline from 1.4248 (2018 high) is likely to continue the long-term downtrend from 2.1161 (2007 high). A sustained break of 1.1409 targets a 61.8% view of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675. This will remain the preferred case for now as long as 1.2292 resistance holds.
Update of economic indicators
|Greenwich Mean Time||Ccy||events||Indeed||forecast||previous||Revised|
|23:00||EUR||Manufacturing Purchasing Managers Index Sep P||53.9||53.8|
|23:00||EUR||Services PMI Sep P||50.4||50.2|
|23:01||British pound||GfK Consumer Confidence Sep||-49||-42||-44|
|07:15||EUR||Manufacturing PMI France Sep P||47.8||49.9||50.6|
|07:15||EUR||Services PMI France Sep P||53||50.4||51.2|
|07:30||EUR||Manufacturing PMI Germany Sep P||48.3||48.3||49.1|
|07:30||EUR||PMI Germany Services Sep P||45.4||47.2||47.7|
|08:00||EUR||Eurozone Manufacturing PMI Sep P||48.5||48.8||49.6|
|08:00||EUR||Eurozone Services PMI Sep P||48.9||49.1||49.8|
|08:30||British pound||Manufacturing Purchasing Managers Index Sep P||48.5||47.4||47.3|
|08:30||British pound||Services PMI Sep P||49.2||50||50.9|
|12:30 p.m||CAD||Retail M/M Jul||-2.50%||-2.00%||1.10%||0.60%|
|12:30 p.m||CAD||Retail sales ex cars M/M Jul||-3.10%||-1.00%||0.80%||0.60%|
|1:45 p.m||USD||Manufacturing Purchasing Managers Index Sep P||51.8||51.2||51.5|
|1:45 p.m||USD||Services PMI Sep P||49.2||45||43.7|