Daily Market Report - 09/08/22
Gas crisis worsens in the EU, as emergency plan comes into effect
The European Union gas emergency plan has come into effect today, asking countries to voluntarily cut gas use by 15% this winter to prepare for a potential full Russian cut-off. The reductions could become mandatory in a supply emergency, albeit with opt-outs for some countries and industries.
Retail sales in the UK rose 2.3% last month, as the heatwave boosted sales of summer clothing, picnic treats and electric fans despite the intensifying cost of living crisis.
Experts said it could be the “lull before the storm,” with the Bank of England predicting a recession lasting longer than a year and inflation rising above 13.3%.
The latest monthly survey from the British Retail Consortium (BRC) showed a 2.3% sales rise in July compared with a 6.4% rise the year before. But the sales growth was largely caused by inflation, which is running at a 40-year high of 9.4%, and masked a larger drop in the number of items sold. Retail sales have held up as people have been splashing out on summer clothes amid warm weather as well as wedding outfits, enjoying the opportunity to go on holiday and to family events that had been delayed by the pandemic.
Following the Bank of England’s 50 basis point rate hike on August 4th, in its fight against inflation, according the market analysts; The Fed and ECB are likely to continue to hike at a rapid pace, and a desire to support sterling will likely drag the BoE along with them.
Sterling initially fell in the reaction to the rate hike, which appeared to be a classic "sell the fact" by a currency market that had bid it higher against both the Euro and Dollar in the two weeks leading to the decision. On the surface, a 50bp hike is broadly supportive of the Pound, as are the indications the Bank is not yet ready to stop. But, dire economic forecasts that showed a prolonged recession would start towards year-end ultimately stole the headlines.
EUR/USD is displaying back and forth moves in a tight range around 1.0200, as investors await US inflation data for a fresh direction. Subdued US dollar and yields offset the European gas crisis and recession fears.
Brexit woes and the Bank of England’s (BOE) gloomy economic outlook weigh on the GBP/USD prices. “Portugal's border agency SEF has faced criticism for delays in issuing post-Brexit ID cards to thousands of British nationals in the country, putting the spotlight on a structural problem that has affected various other migrant communities for years,” said Reuters.
Other than the US data, headlines surrounding UK politics, Brexit and the US-China tussles over Taiwan should be watched carefully ahead of the US Consumer Price Index (CPI) for July, up for publishing on Wednesday.