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Shoppers could relax as cost of living fears eased
The pound gained more than two cents against the US dollar yesterday and is now up 1.5% from where it began the week.
This morning’s figures showed that UK inflation fell to 4.6% in October from 6.7% last month, its lowest level since 2021 and marking the largest month-on-month drop for three decades. The pound was stable in early morning trading against both the US dollar and the euro following the news.
Sterling’s gains yesterday came on the back of stable unemployment numbers and cooling US inflation data, which boosted expectations that the Federal Reserve may cut interest rates sooner rather than later. Headline US inflation came in below forecasts at 3.2% on the year compared to 3.7% in both September and August. Energy and food costs were the main drivers of the fall.
The euro also gained on the US dollar and has advanced by 2% compared to the start of the week. This came despite the eurozone’s GDP having shrunk by 0.1% in Q3 after recording a 0.2% rise in Q2. Spanish inflation meanwhile remained unchanged at 3.5% in October, while in France the annualised rate fell to 4% from 4.9%.
The ZEW Economic Sentiment Index surprised to the upside, as German respondents reported their highest level of consumer confidence since March.
Overnight, Chinese retail sales were shown to have climbed by a whopping 7.7% percent year-on-year, accelerating from a 5.5% jump the month before. The figures frame a rare bilateral meeting between Joe Biden and Xi Jinping in San Francisco today.
As expected, the fallout from David Cameron’s shock return to the top of British politics rumbled on. Several conservative MPs loyal to Suella Braverman spoke out in support of the former home secretary yesterday.
BT has said its pension funding deficit, which was as high as £8bn in 2020, had shrunk to £3.7bn in June of this year. Its annual contribution amounts will remain the same, according to a company statement.
Beleaguered utility Thames Water is facing a £73mn penalty for failing to meet performance targets. Thames Water is one of 12 UK water providers that the regulator Ofwat has dished out new fines to.
The Republican speaker of the US House of Representatives Mike Johnson has successfully pushed through a temporary funding proposal to prevent the imminent government shutdown. Johnson secured the support of a number of Democrats to pass his proposal, which will now be sent to the senate before it can be signed into law.
Italian inflation is set to be released this morning, as well as American retail sales and PPI. The flow of data is distinctly slower from today, which should give markets time to digest recent moves.
After today, Friday’s eurozone inflation is the most important release remaining in the week. A handful of US data points will be of interest, along with UK retail sales on Friday.
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GBP: Wage growth eases
The pound responded positively to cooling inflation data on both sides of the Atlantic and is now up by almost 2 cents against the US dollar.
The pace of UK wage increases eased slightly in the three months to September as hiring slowed, the ONS reported. Excluding bonuses, average annual growth in regular earnings was 7.7% in Q3, down from a peak of 7.9% two months prior. Annual growth in total pay has also slipped back from record highs of 8.5% in July to 7.9%.
The figures proceeded this morning’s news that inflation had cooled by more than expected. UK inflation is now running at 4.6% year-or-year, well below last month’s 6.7%.
GBP/USD: the past year
EUR: German consumer mood bright
The euro mirrored sterling’s strong performance against the greenback yesterday.
It’s not been since March that the key German consumer confidence survey – the ZEW – has been this high. The index rose by almost 5 points more than had been expected. It’s now at 9.8, indicating a solid majority of respondents have a more positive than negative opinion of the country’s economic outlook.
The Ifo business climate survey will be published next week, so we should be able to read the temperature from a German corporate perspective before long.
USD: Inflation cools, treasuries rally
News that all major categories of US CPI decreased in October was greeted warmly by markets, as expectations grew that the Federal Reserve would not have to raise interest rates again.
The price of US treasury bonds jumped, pushing the yield on those bonds down to 4.4% from 4.6%. Sovereign bond yields move in inverse correlation to their price, this move therefore indicating increased confidence in the American economy.
Yesterday was also a good day for Wall Street, where major indexes rallied off the back of developments, and news of another averted government shutdown is sure to put a spring in many steps.
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