Yesterday’s trading session was once again mainly dominated by headlines out of the Middle East, as UK Prime Minister Sunak reaffirmed the UK’s support for Israel. Fed Chair Powell’s speech yesterday evening offered a brief respite from geo-politics, as he once again referred to US economic strength and continued tight labour markets. Bond yields rose, with the benchmark 10-year hitting a 16-year high at 5% after he unexpectedly pushed back against market consensus that the Fed’s rate hike cycle had peaked.
UK retail sales data released this morning came in much weaker than forecast, as the cost-of-living crisis deepens and unseasonably warm weather hit non-food stores sales volumes.
More bad news for the UK came out overnight as consumer confidence numbers tumbled on renewed concerns over personal finances and the overall economy.
* Daily move - against G10 rates at 7:30am, 20.10.23
** Indicative rates - interbank rates at 7:30am, 20.10.23
The toxic combination of increased tensions across the Middle East along with rising Bond yields is causing a steep sell-off in global equites, and driving further safe-haven flows into the US dollar. Adding to $ buying, Fed Chair Powell seemed somewhat surprised as to the strength of the US economy, and did not rule out further interest rate hikes. Over in the UK the bad news just keeps coming for the pound, with retail sales and consumer confidence both taking a big hit. Bank of England Governor Bailey overnight stated he expects a “marked fall” in inflation next month“.
Markets are likely to remain “risk-off” today as trades square up ahead of the weekend, on fears of further escalation in the Middle East after overnight reports of US interceptions of cruise missiles headed for Israel, and a US army base in Iraq hit by rockets and drones.
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