November 14, 2022

Treasury kite flying obscures the view

Macro & Overnight

The main macro themes for this week are the impact of lower US inflation, the UK’s budget, and the G20 meeting in Bali.

Further reflection on the US inflation data showed that the goods component was lower, but the services element remained persistently strong. Some analysts have pointed out a non-recurring benefit to the print from lower healthcare costs. Something that the Fed may choose to ignore.

However, last week’s rebound in risk assets undoubtedly has a sizeable short-covering element, but it continued its move across Asian markets overnight.

In its wake, there has been a breakdown in the DXY dollar index to below 107. This 6% fall in the space of a month provides at least temporary respite from tight global monetary conditions.

As if by way of a cautionary note, Gold and silver rallied, indicating a latent fear that the Fed might be tempted to loosen prematurely.

Yesterday FOMC member Mary Daly said, “you have to be mindful of the cumulative tightening that’s already in the system. You have to be mindful of the lags in monetary policy. You have to be mindful of the risks that are all throughout the global economy and the tremendous uncertainty that we have even about what the evolution of inflation is going to be.” Comments can be interpreted as dovish but also clueless.

The UK’s third attempt this year at a budget will be a defining moment for the Sunak/Hunt partnership. After their predecessors’ failed “think tank simulation” exercise, the markets will look for higher taxes, allowances that can be eaten away by inflation and strict nominal spending limits.

So many kites have flown above Whitehall recently that it is unlikely that Treasury officials have seen much of the autumn sunshine.

However, Jeremy Hunt could not be more explicit. It will be painful.

Boosted by better than expected mid-term results, Joe Biden might meet President Xi of China at the G20 in Bali this week. Their first meeting as heads of state.

UK Company News

Digital transformation supplier Kainos announced strong H1 results, with upgrades likely for the full year.

Cream cake franchisor Cake Box released in-line H1 results and maintained guidance for the year.

Addiction treatment specialist Indivior has announced the acquisition of Opiant Pharma in the US.

Martin Sorrel’s S4 Capital released results showing Q3 Gross Profit with LFL growth of +29% and reiterated its guidance for Operational EBITDA of approximately £120m for FY22.

Electronic component supplier Solid State announced a £7.3m contract awarded by the NATO Support and Procurement Agency to supply comms equipment.

Joules has followed Made.com into administration.

 

Prognosticator

NB Prices are as at the previous day’s close.

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