The Axiom IFS Update 18th September 2023

Former Prime Minister Liz Truss is set to blame the UK’s anemic growth on too much “economic consensus,” while claiming that she would have spent £35.5 billion less during the current Parliament than her successor Rishi Sunak.

 

Britain’s property market has broken another record with rental housing costs growing at the fastest pace in at least a decade, while home sellers pushed up asking prices for the first time in four months, two separate reports showed.

The figures underscored inflationary pressures in the UK economy that are alarming the Bank of England and adding to pressure for another hike in interest rates later this week. They’re also an indication of turmoil in the property market that’s having a significant impact on consumers.

Tenants paid 12% more than a year ago for new rental agreements in August, the largest rise since property broker Hamptons began publishing its letting index. In the sales market, property portal Rightmove said sellers bumped up the prices they’re asking for by 0.4% in September, the first time asking prices have risen since May.

GBP.

The Pound was largely flat last week as investors await the BoE’s meeting later this week. Markets expect the central bank to hike interest rates for the 15th time on Thursday as inflation remains elevated even as the U.K. economy falters. However, there are increasing possibilities that the BOE might signal an end to its rate-hiking cycle after Thursday’s expected increase. What this means for the direction of the pound remains to be seen.

USD.

The U.S. dollar edged lower in early European trade this morning, but remained near six-month highs as traders cautiously await the Fed’s rate decision this week. On that note, the Fed is widely expected to keep interest rates on hold, however, it’s also likely to maintain its hawkish stance, signalling the possibility of at least one more hike this year. Market volatility is likely to be limited heading into a busy second half of the week.

EUR.

The Euro tried to retrace part of last week’s losses as investors continue to assess the dovish hike by the European Central Bank. Looking forward, ECB policy makers Luis de Guindos, Frank Elderson and Fabio Panetta are scheduled to speak later today. Their comments will be studied to understand the extent of their dovish turn following indications of an end to the year-long rate-hiking cycle.

JPY.

The USD/JPY pair consolidates in a narrow range during the early European session on Monday. Markets turn cautious ahead of the key events from both the Federal Reserve (Fed) and Bank of Japan (BoJ) this week. On the JPY’s front, the BoJ policy meeting on Friday will be in the spotlight. The possibility that BoJ is notably closer than initially thought to abandoning ultra-loose policy and negative interest rates is rising.

CAD.

The loonie has largely managed to hold on to last week’s gains through the weekend and into the Monday session, with USDCAD currently trading near its one-month lows. The move higher for the loonie has been well supported by better news out of China and, in particular, the grind higher in oil prices with WTI continuing to push higher, having broken through $90 per barrel last week.

GOLD.

Gold prices hit one-week highs on Monday as investors fully priced in a pause in interest rate hikes by the Federal Reserve at its policy meeting this week, with a focus on the U.S. central bank’s rate outlook. European shares opened lower, making gold attractive for investors ahead of policy decisions by the Fed on Wednesday, the Bank of England on Thursday and the Bank of Japan due on Friday.

STOCKS.

European and Asian stocks retreated on Monday as investors worried that flagging global demand could weigh on the chipmaking sector. Europe’s region-wide Stoxx Europe 600 fell 0.5 per cent, dragged lower by healthcare and utilities stocks, while the Cac 40 in Paris lost 0.6 per cent and the Dax in Frankfurt gave up 0.3 per cent at the opening bell.  In Asia, Hong Kong’s Hang Seng index and South Korea’s Kospi declined 1 per cent, while markets in Japan were closed for a holiday. China’s CSI 300 was the only riser in the region, up 0.5 per cent.

CRYPTO.

The recent tumult in crypto markets, and ensuing regulatory crackdowns on the sector’s major players, have dented the appeal of their underlying blockchain technology to traditional finance operators. The collapse of FTX in November 2022 capped off a year of crisis in crypto markets in which price falls and scandals left a permanent black mark on the sector. And this year has been defined by flashpoints between regulators and the blockchain industry. In June, the SEC followed the lead of the Commodity Futures Trading Commission in levelling charges against Binance, the world’s largest crypto exchange, for alleged trading violations. Publicly listed rival Coinbase is also facing similar charges from the SEC.

OIL.

Oil crept higher toward $95 a barrel, extending a powerful surge that has been driven by bumper demand and supply cuts from OPEC+ leaders Saudi Arabia and Russia. Global benchmark Brent added 0.3%, after a three-week rally that boosted prices by 11%. The gains have in recent days been accompanied by a jump in key time spreads that suggest the market is undersupplied, while bullish call options are also getting more expensive. Crude in London is up almost 10% this year as the OPEC+ linchpins curb production and the demand outlook brightens, with the US potentially avoiding recession just as refiners in China go all-out.

 

 

 

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