With less than two weeks until the midterm elections, it’s galling to me to see Republicans making headway in their effort to present themselves as better stewards of our economy than the Democrats. It’s a lie. Of course, when we talk about the economy in this context, we’re really talking about inflation. Other than inflation, the state of the economy is quite good, with the unemployment rate near a post-war low and virtually all of the pandemic-related job losses now recovered. Regardless, Republicans are hoping and expecting the electorate to hold Democrats responsible for our currently unacceptable rate of inflation. Unfortunately, it seems that not enough of the public have realized that (a) it’s a dishonest accusation and (b) the Republicans haven’t offered a credible path forward that could reasonably be expected to solve the problem. Republicans cite the “excessive” government support offered in connection with the American Rescue Plan and the Inflation Reduction Act as causing the inflation, giving little acknowledgment to the covid-related supply chain problems we experienced starting with the onset of the pandemic or to the market disruptions caused by Russia’s war in Ukraine. Somehow, the fact that inflation is a world-wide problem rather than purely a US concern is lost on the Republicans. For them, nothing matters except the Democrats’ culpability. How disingenuous is that? At present, with Democratic control in Congress and the White House, we’re poised to do the right thing. The appropriate fiscal policy to fight inflation calls for a contractionary stance to reduce upward price pressures, and that’s what we’re currently doing. Arguably, the single most meaningful indicator of that policy is the federal deficit. A rising deficit is expansionary; a falling deficit is contractionary. We’re at a point now where the deficit has declined significantly from its Covid-related peak, and it is projected to continue declining through 2023. This transition from expansionary to contractionary policy occurred largely because of the cessation of much of the support that had been authorized under the Covid-Relief Plan. The Covid-related increase of spending was expansionary; the subsequent cutoff has been contractionary. With inflation being our primary economic focus. our contractionary policy is as it should be. I suppose inflation critics on the Republican side may believe that the current policy is not sufficiently contractionary. Satisfying these critics would require cuts in government spending, including social security and Medicare expenditures. You may not hear all that many of the current crop of Republican candidates loudly broadcasting this position, but their reticence is a cover. Kevin McCarthy, the presumed next majority leader in the House if Republicans gain control has gone on record with the Republican game plan. His intention is to use the leverage of the upcoming debt limit authorization bill to extract exactly these kinds of cuts. It’s worth remembering that this party introduced more than 60 bills to kill Obamacare. McCarthy’s stated objectives should be taken seriously. Ya gotta hand it to Republicans. If at first you don’t succeed, try and try again, even at the expense of precipitating a crisis of lasting consequences if the debt limit ceiling isn’t raised. It’s nothing short of ludicrous to believe that the party willing to jeopardize the credit standing of the United States to achieve its political goals should be the architect of our economic policy. And if the threats to critical and popular safety net programs and to the credit standing of the US weren’t serious enough, McCarthy also added some unneeded uncertainty as to the strength of our nation’s commitment to the support of Ukraine. Not satisfied with sabotaging domestic government programs and responsibilities, McCarthy and his cohorts are ready to screw things up internationally, as well. Perhaps my biggest beef with the Republican orientation to fighting inflation is the resistance to tax increases for higher income taxpayers. For those genuinely committed to a more aggressive effort to combat inflation than that offered by the Democrats, lowering the deficit should take high priority. The commitment to do so, however, without reliance on raising taxes gives a lie to their purported concerns. It’s not just that Republican’s won’t support tax increases, all the while bemoaning the level of inflation we’re facing, they’re looking to cut taxes — a policy prescription akin fire fighters bringing kerosene to douse the flames of a burning building. If tax increases were on the table, undoubtedly those increases would fall heavily on higher earners. Perish the thought. It’s a bit rich to hear Republicans criticizing Biden and the Democrats for not dealing with inflation appropriately while ruling out raising taxes. Instead, by focusing exclusively on cutting back on safety net spending, their policy platform would impose the cost of fighting inflation disproportionately on the members of our society that can least afford it and who likely bore little responsibility...

From the weekly on Sunday: EUR/USD broke 0.9993 and first target at 1.0057 achieved destination, USD/JPY from 147.64 completed target at 148.40. DXY broke below 111.25 and traded to 109.00's. DXY from Sunday struggled and dropped from 112.00's. DXY's break below 111.25 allowed EUR/USD and GBP/USD to break above most vital levels at 0.9993 and 1.1572. EUR/CHF and GBP/CHF assisted EUR/USD and GBP/USD higher by breaks above EUR/CHF 0.9842 and GBP/CHF 1.1381. AUD/USD and NZD/USD failed to break above vital 0.6578 and NZD/USD 0.5913 to join EUR/USD and GBP/USD. AUD/USD and NZD/USD must break above vital levels or EUR/USD and GBP/USD must drop to maintain uniformity. EUR/USD levels for today: 1.0072, 1.0078, 1.0084, 1.0091, 1.0104, 1.0110, 1.0117 Vs 1.0015, 1.0021, 1.0027, 1.0040, 1.0050, 1.0053 Most Vital 1.0015 and 1.0040 Vs 1.0091 and 1.0117. EUR/USD vs DXY EUR/USD for next week must break 1.0005 and another line around 0.9950 to target again 0.9700's. Next target above 1.0171. DXY maintains a big break at low 111.00's to target 113.00's. DXY traded 302 pips this week to EUR/USD 297. EUR/USD maintain perfect paces to DXY as DXY drives all markets. EUR/USD strategy is short and long DXY and USD currencies. Overall DXY is oversold and targets low 111.00's or 200 ish pips higher and this takes EUR/USD to 0.9800's if 0.9950's break below. USD/CAD trades oversold and just above big break for lower at 1.3423. Oversold USD/JPY maintain a range from 144.41 to 145.93. Above targets again 148.98. Watch USD/CHF at 0.9844. JPY cross pairs JPY cross pairs 2 weeks running trades severely overbought to include CHF/JPY. JPY cross pairs are range trading rather than break or focus on breaks at vital averages in order to trend. JPY cross pairs are pretty much day trades with a short only trade strategy. GBP/JPY leads the way forward while EUR/JPY traded in tiny ranges this week.. Both USD/JPY and EUR/JPY trade just above vital 142.00's. Much lower on a break and GBP/JPY at 164.00's. EUR/CAD trades massively overbought while nothing special exist to GBP/CAD except to follow EUR/CAD lower. GBP/USD big break are located 1.1572 and targets 1.1450 and only below 1.1450targets levels back to 1.1200's. AUD/USD and NZD/USD trade in do or die mode to either follow EUR/USD and GBP/USD higher and break vital levels or EUR/USD and GBP/USD trade lower to take AUD/USD and NZD/USD down. Lower for AUD/USD targets 0.6300's and NZD/USD middle 0.5600's. AUD/USD trades practically pips for pip to AUD/EUR and explains EUR/AUD trading in tiny ranges over last qwwks. Both AUD/USD and AUD/EUR trade oversold. GBP/NZD trades overbought vs oversold EUR/NZD. EUR/NZD leads the way for GBP/NZD as EUR/AUD dictates moves to GBP/AUD. Best strategy is shorts to EUR/AUD and EUR/NZD. AUD/USD 0.6578 and NZD/USD 0.5911 holds EUR/AUD and EUR/NZD progress to trade in wider ranges.

Federal Reserve rate meeting – 02/11 – there is unlikely to be too many surprises this week when the Federal Reserve is expected to raise the Fed Funds rate by another 75bps, following on from three similar moves in June, July and September. In September Fed chair Jay Powell indicated that the FOMC were “strongly committed” to driving inflation lower while signalling that more rate rises are on the way. Powell went on to say that there was no painless way to drive inflation lower, with the prospect that we could well see another 100bps by the end of this year at the bare minimum. The tone was also markedly different, with the Fed downgrading its annual GDP target to 0.2% in 2022, with Powell admitting that a recession might be possible. Core inflation is forecast to decline to 4.5% this year, before falling to 2.1% by 2025. Since then, we’ve had a succession of Fed speaks talking up the prospects of even more aggressive tightening, with the prospect that we might see another 150bps by year end which would put the Fed Funds rate at 4.75% by year end. At the end of last month there was some chatter that some Fed officials were becoming uneasy at the pace of the current hiking cycle. That would seem eminently sensible but for the fact that apart from Fed vice chair Lael Brainard there has been precious little articulation of that line from any Fed official in recent public speeches. Even the likes of Neel Kashkari of the Minneapolis Fed have shown little sign of the need for a pause or a pivot at this point, commenting back in October that the Fed would be in no position to slowdown the pace of rate rises if inflation was still rising. Having said that we could be starting to see signs of cracks in the consensus after San Francisco Fed President Mary Daly said that after November the time could be ripe for talk about stepping down the pace of rate hikes. Thus, the Powell press conference is likely to be just as important in the context of whether he comes across as hawkish as he did in September. Bank of England rate meeting – 03/11 – the weakness of the pound in recent weeks, along with the political turmoil has had a significant upward impact when it comes to UK inflation, whether it be in terms of a lower pound raising import costs, but also higher borrowing costs pushing up mortgage rates. The various downgrades from the ratings agencies won’t have helped but they are unlikely to have moved the dial that much. The bigger question now is whether we get a 50bps rate rise this week or a 75bps move. With fiscal policy now set to be a lot tighter despite warnings about raising tax rates into a slowdown, the scope for the Bank of England to be more aggressive is now said to be more limited, due to concerns about the impact on demand. It seems a little bit late for that at this point in time, given that the actions of the government in raising taxes is likely to mean any recession is now likely to be much more prolonged, which in turn could mean that the pound stays under pressure for longer. It still seems more likely than not that we’ll see 50bps from the Bank of England this week, given rising concerns about slowing growth, with any rate increases after that likely to be much slower. The Bank of England will also have to deliver its latest economic forecasts for inflation and GDP. Let’s hope they are more accurate than they have been so far this year. US non-farm payrolls (Oct) – 04/11 – the US labour market has continued to hold up well despite concerns over slowing consumer spending and increased costs on the part of some US businesses. We have started to see reports of job losses from some companies in the most recent earnings reports which may at some point start to work its way into the headline numbers. At the moment that isn’t happening with job vacancies still high and weekly jobless claims still at a very low 230k a week. The September payrolls numbers were decent, coming in at 263k, while the unemployment rate fell to 3.5%, although that was largely down to a similar drop in the participation rate to 62.3% from 62.4%. This continues to be a puzzle given the continued rising cost of living and the fact it is 1% below the levels it was pre-pandemic. Wage growth at 5% isn’t exactly ripping up any trees either, falling to its lowest level this year. Expectations are for another slowdown in jobs growth to 200k which would be the...

Another extraordinary week is coming up. The Fed is almost certain to raise rates, putting the spotlight on Chairman Powell, who needs to open the door for a smaller rate hike in December without giving the impression of a pivot. Meanwhile, central bank decisions in the UK and Australia will be crucial for those currencies, before the week concludes with the latest edition of nonfarm payrolls. 

US economy is forecast to grow at an annual rate of 2.4% in Q3. Investors reassess Fed’s policy outlook following dismal US data. DXY technical picture points to a bearish tilt. The US Bureau of Economic Analysis will release its first estimate of the third-quarter Gross Domestic Product (GDP) on Thursday, October 27. Markets forecast the US economy to expand at an annualized rate of 2.4% following the 0.6% contraction recorded in the second quarter. The Federal Reserve Bank of Atlanta’s latest GDPNow estimate, published on October 19, however, showed that the GDP is expected to grow by 2.9% in Q3. Following the Federal Reserve’s decision to hike the policy rate by 75 basis points (bps) in September, policymakers have acknowledged the heightened risks of an economic downturn but reiterated that they will remain focused on taming inflation until they see a consistent increase in the unemployment rate – full employment being another of their key mandates. In the Summary of Economic Projections released alongside the policy statement, Fed officials projected the GDP to grow by 0.2% in 2022 and 1.2% in 2023.  Market implications Nick Timiraos, The Wall Street Journal’s chief economics correspondent who correctly leaked the 75 bps hike a few days before the July policy meeting, wrote recently that policymakers were planning to communicate smaller rate hikes from December. The disappointing S&P Global PMI surveys revealed earlier in the week that the economic activity in the private sector contracted at an accelerating pace in early October, triggering a dollar sell-off. Additionally, the Conference Board’s sentiment survey revealed that consumer confidence deteriorated in October, causing the greenback to continue to weaken against its major rivals. Dismal US data releases following Timiraos’ article seem to have revived expectations for the Fed to adopt a less aggressive policy stance. According to the CME Group FedWatch Tool, markets are pricing in a more than 50% probability of the US central bank raising the policy rate by a total of 125 bps by the end of the year, compared to only 20% last week. As mentioned above, FOMC officials are unlikely to put too much weight on the GDP report when assessing the policy outlook. However, the market reaction to the latest US data, which had not been big market movers in the past, suggests that investors might be looking for an excuse to get out of their dollar longs while re-evaluating their positions ahead of the Fed’s policy announcements on November 2. Hence, a Q3 GDP reading slightly below or at the market projection of 2.4% could force the dollar to stay on the backfoot after the kneejerk reaction, while a print below 2% could open the door for another sharp decline in the US Dollar Index (DXY). On the other hand, a GDP growth at around the Atlanta Fed’s estimate of 2.9% should help USD stay resilient against its peers, at least until next week’s Fed meeting. DXY technical outlook The Relative Strength Index (RSI) indicator on DXY’s daily chart declined to its lowest level since early August below 50 following the dollar sell-off witnessed in the first half of the week, pointing to a bearish tilt in the short-term outlook. On the weekly, the RSI has exited overbought, giving a sell signal. Additionally, the index broke below the 50-day SMA for the first time in over two months. On the downside, 110.00 (psychological level) aligns as interim support. In case DXY falls below that level and starts using it as resistance, it could extend its slide toward 109.60 at around the level of a major multi-month trendline and the Fibonacci 50% retracement of the August-October uptrend. Further down still lies 108.50, the Fibonacci 61.8% retracement and the level of the 100-day SMA. Key resistance seems to have formed at 112.00 (Fibonacci 23.6% retracement, 20-day SMA). Only a daily close above that level could be seen as a significant enough bullish development to trigger another leg higher toward 113.30 (static level) and 114.00 (end-point of the uptrend).

EUR/USD: 0.9957 Euro's rise from Oct's 0.9632 trough to 0.9875 last Tue suggests further 'volatile' swings above Sep's 2-decade trough at 0.9537 would continue, yesterday's break of 0.9899 to 0.9976 would re-test 0.9999, above extends said upmove from 0.9537 towards 1.0050 objective later. On the downside, only a daily close below 0.9899 would indicate a temporary top made and risk weakness towards 0.9849, then 0.9808. Data to be released on Wednesday Australia CPI, Japan leading indicator, coincident index. France consumer confidence, Italy trade balance, Swiss investor sentiment. U.S. MBA mortgage application, building permits, goods trade balance, wholesale inventories, new home sales and Canada BOC rate decision.

The consensus among analysts is that the BOC will raise rates another 75bps, leaving the target rate at 4.0%. Lately, Canada has been "leading" the Fed since its meetings are scheduled before its southern neighbor's. Since both countries are facing similar situations, what the BOC does is often interpreted as a little foreshadowing of what to expect out of the Fed. Therefore, if the BOC doesn't deliver on expectations, it could shake confidence in the consensus that the Fed will also raise rates by 75bps. Canadian economic data has been doing relatively well over the last couple of weeks, which is seen supporting a strong move by the BOC. But there just recently was a fly in the ointment: US flash manufacturing PMIs fell into technical contraction this month. Canada doesn't have a comparable flash reading, meaning that the situation there could be similar, but it just isn't known. Canada first to pivot? Another difference is that Canada has had core inflation slowly falling unlike the US, but still above expectations. That has raised expectations that even though the BOC is expected to hike, it will do so "dovishly". That is, after the rate hike, Governor Macklem will tone down expectations of further aggressive hikes during his post-rate decision. The BOC releases the monetary policy report (MPR) at the same time as the rate decision, and that's likely to be poured over to find any clues about when the "pivot" will happen. If the bank lowers its economic projections, then that is likely to be taken as a sign that the next rate hike won't be as aggressive. Or that the BOC might even pause in December. How long can the BOJ stay put? Despite all that's been happening with the yen lately, the BOJ is expected to keep monetary policy unchanged when it meets later in the week. Inflation has been rising in Japan, but not enough to shake the banks' extreme easing position. But that doesn't mean that Kuroda couldn't influence the market in his extensive press conference following the meeting. As the yen has weakened over the last several months, calls have risen for the BOJ to do something. There have been at least two interventions so far to stop the slide in the currency. Although it's the BOJ who does the intervention, it's at the direction of the Ministry of Finance, which has allowed the central bank to remain aloof from the currency situation. What can be done The BOJ is currently applying a series of easing tools, from negative rates, to yield curve control to buying bonds. Although it could reverse course on any of those, should the BOJ decide to take measures, it most likely would come with first removing yield curve controls, since they are the least orthodox policy and would likely be interpreted as the least change in policy. However, it's not likely that will be decided at this meeting. But it could be something that Kuroda hints at during the press conference that could finally move the yen in a more permanent direction. Otherwise, smaller interventions might be the course, which would only increase speculation of coordinated action in the future.

AUD/USD Current Price: 0.6396 AUD/USD benefited from firmer stocks and easing US government bond yields. Australian annual inflation is foreseen up by 7% YoY in the third quarter of the year. AUD/USD gains upward traction but still needs to break above 0.6450. The AUD/USD pair hovers around the 0.6400 level early in the Asian session after peaking on Tuesday at 0.6411. The pair spent the first half of the day consolidating just above the 0.6300 level, gathering upward momentum during US trading hours. The advance can be attributed to the positive tone of US equities, as Wall Street managed to extend its recent gains on the back of encouraging earning reports. Additionally, market players are lifting bets the US Federal Reserve will slow the pace of tightening before year-end, as policymakers began expressing their concerns over the negative effects of higher rates. Whether AUD/USD could extend its gains will depend on the upcoming Australian data. The country will release the Q3 Consumer Price Index, expected to have increased at an annual pace of 7%. The quarterly reading is foreseen at 1.5%, decreasing from 1.8% in the previous quarter. The RBA trimmed Mean CPI is foreseen at 5.6% YoY, up from the previous 4.9%. Higher than anticipated figures may take a hit on the AUD as market players would favor increasing bets on a more aggressive Reserve Bank of Australia. AUD/USD short-term technical outlook The AUD/USD pair is holding above a Fibonacci level, the 23.6% retracement of its latest daily decline at 0.6345. The 38.2% retracement provides resistance at 0.6450. Technical readings in the daily chart fall short of supporting additional gains, yet at the same time, reflect decreasing selling interest. Technical indicators advance but remain below their midlines. At the same time, the pair is crossing above a now flat 20 SMA but remains the weekly high set on Monday at 0.6410. The longer moving averages, in the meantime, keep heading firmly south, far above the current level. In the near term, and according to the 4-hour chart, the risk skews to the upside. The pair trades above is 20 and 100 SMAs, with the shorter one en route to cross above the longer one. Technical indicators have lost their bullish momentum but remain near their daily highs well above their midlines. Support levels:  0.6275 0.6230 0.6190 Resistance levels: 0.6345 0.6380 0.6415 View Live Chart for the AUD/USD

EUR/USD - 0.9884 Euro's rise from Oct's 0.9632 trough to 0.9875 last Tue suggests further volatile swings above Sep's 2-decade trough at 0.9537 would continue, Fri's rally from 0.9705 and then yesterday's brief break of 0.9875 resistance to 0.9899 has retained daily bullishness but 0.9960 should remain intact. On the downside, only a daily close below 0.9808 would risk further weakness towards 0.9755. Data to be released on Tuesday Germany Ifo business climate, Ifo current conditions, Ifo expectations, U.K. CBI trends orders. U.S. redbook, monthly home price, consumer confidence and Richmond Fed manufacturing.

USD/DXY Tumbles, 2YR US Bond Yield Slumps 14 BPS, AUD Climbs Summary Japan’s Ministry of Finance (MOF) may have intervened in the FX market on Friday, buying Yen against the US Dollar near the 152 level, according to Reuters quoting a government official. In early Asian trade, the USD/JPY was trading around 147.70 after it hit a high at 151.94 on Friday. On his visit to Australia, Japanese PM Fumio Kishida told reporters that the government “cannot tolerate excessively volatile moves driven by speculative trading.” In the other currencies, the Bank of Thailand (Thai central bank) said over the weekend that it was closely monitoring a volatile, weak Baht, driven by Dollar strength. Thailand’s currency has depreciated by 13% against the US Dollar. USD/THB plummeted 1.5% to 36.60 (38.20 Friday). The US Dollar slumped against the other Asian and EMFX. Against the Singapore Dollar, the Greenback (USD/SGD) closed 0.60% lower to 1.4150 (1.4240). The British Pound (GBP/USD) rebounded 0.51% against the Greenback to 1.1300 (1.1215) as UK politics steadied following a week of turmoil. Boris Johnson pulled out of the Conservative leadership race paving the way for Richi Sunak to become Britain’s prime minister. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, tumbled 0.80% to 111.80 (112.90 Friday). Broad-based US Dollar weakness boosted the Australian Dollar (AUD/USD) higher to 0.6380 from Friday’s 0.6280. The Kiwi (NZD/USD) soared by 1.26% to 0.5765 (0.5677). The Euro (EUR/USD) rebounded 0.82% higher, settling at 0.9860 in late New York from Friday’s open at 0.9780. Against the Swiss Franc, the Greenback fell to 0.9980 from 1.0043. Better-than-expected Canadian Retail Sales boosted the Loonie against the Greenback. The USD/CAD (Dollar-Canadian Dollar) slid to 1.3642 from 1.3775 yesterday. Differentials between the US and global bond yields narrowed which weighed on the Greenback. The benchmark US 10-year Treasury rate dipped to 4.22% (4.23%). In contrast the UK 10-year Gilt treasury yield rose 15 basis points to 4.04% (3.89% Friday). The two-year US bond yield tumbled 14 basis points to 4.47% from 4.61%. Wall Street stocks rallied. The DOW climbed to 31,210 (30,325) while the S&P 500 was last at 3,760. from 3,667. The NASDAQ rose 0.54% to 11,392 (11,070 Friday). Economic data released Friday saw New Zealand’s Trade Deficit climb to -NZD 1615 million, bigger than estimates at -NZD 1413 million. Japan’s Trade Deficit narrowed to -JPY 2.01 trillion from a previous -JPY 2.34 trillion. Japan’s Annual Core Inflation Rate in September climbed to 3% from a previous 2.8%, matching median estimates. UK September Retail Sales (m/m) fell to -1.4% against expectations of -0.5%. UK Public Sector Net Borrowing was higher at -GBP 19.2 billion from a previous -GBP 11.06 billion. Canada’s August Retail Sales (m/m) soared to 0.7% from a previous -2.5%, higher than estimates of 0.2%. Core Retail Sales were up at 0.7%, beating expectations of 0.4%. USD/JPY – The Dollar plummeted against the Japanese Yen to finish 1.79% lower at 147.65 from Friday’s opening at 150.20. In extremely volatile trade the USD/JPY pair hit a high at 151.94 while the overnight low recorded was at 146.15 following comments from Japan Inc. (Source: Finlogix.com) GBP/USD – Sterling found respite after UK politics steadied, closing at 1.1300 (1.1215 Friday). Following the resignation of Liz Truss, Boris Johnson withdrew from the Conservative leadership race paving the way for former finance minister Rishi Sunak to become British PM. Broad-based US Dollar weakness also boosted the British currency. AUD/USD – The Aussie extended its rally against the Greenback, soaring to a 0.6380 finish from 0.6280. Overnight high traded was at 0.6385. In early Sydney, the AUD/USD pair spiked to a high at 0.6414 before slumping back to 0.6370 where it currently stands. Me thinks some early Sydney banks triggered some stops. Just another manic Monday for the Battler! EUR/USD – The Euro finished 0.82% higher to 0.9860 (0.9778) buoyed by the overall weaker US Dollar. Overnight high traded for the shared currency was at 0.9869 while the overnight low recorded on Friday was at 0.9705. Like all the other FX pairs, trading was choppy. On the lookout The week ahead kicks off with a busy economic calendar scheduled today with the release of Global Flash Manufacturing and Services PMIs. Australia released its S&P October Global Flash Manufacturing PMI which was higher than estimates at 52.8 (from 52.4) but lower than September’s 53.5. Australia’s October Flash Services PMI dipped to 49 from a previous 50.6 and lower than median forecasts at 50.1 RBA Assistant Governor Christopher Kent is speaking currently at the CBA (Commonwealth Bank of Australia) Global Markets Conference in Sydney. Japan follows next with its Jibun Bank October Flash Manufacturing PMI (f/c 50.5 from 50.8), Japanese Jibun Bank October Flash Services PMI (f/c 51.7 from a previous 52.2 – ACY...

The pound has come under pressure once again, with political uncertainty building on economic concerns. Meanwhile, Snap shares have lived up to their name, with the Nasdaq coming under pressure as a result. Sterling slips as political uncertainty builds on wider bearish sentiment "The pound finds itself back under pressure today as traders are faced with yet another bout of political uncertainty and economic concerns. This morning's retail sales data highlighted the struggles facing consumers and businesses alike, with people spending 3.9% more for 6.9% less goods. Meanwhile, traders are faced with yet another bout of political uncertainty, with Penny Mordaunt officially throwing her hat into the ring for a potentially doomed two-year stint that will likely be dominated by inflation and recession." Snap shares drag Nasdaq into the red  "The tech-focused Nasdaq lagged its US peers today, with Snap shares capitulating on growing losses thanks to inflation fuelled advertising struggles. Slowing growth and rising losses bring little confidence for a stock that is largely priced on future revenues. Unfortunately, we are seeing both businesses and consumers tighten their purse strings thanks to rising costs, with advertising revenues dented as a result. With five of the top six largest stocks on the Nasdaq releasing earnings next week, we can expect plenty of volatility as traders weigh up the implications from rising inflation on spending habits."

Europe It’s been another negative day for European markets, although a retreat in short term yields, which is acting as a drag on the US dollar, is helping to support a rebound off the lows of the day. The FTSE100 even managed to claw its way back into positive territory during the afternoon session, despite retailers showing significant weakness on the back of another big slide in UK retail sales in September, while a profits warning from Adidas, isn’t helping either, prompting weakness in the likes of JD Sports, Frasers Group, while Next is also sharply lower, along with the likes of H&M and Zara owner Inditex. The rise in UK gilt yields is acting as a drag on house builders as concerns rise that the UK budget statement might be delayed by any new incoming Prime Minister. There’s been a positive reaction to the Q3 numbers from Deliveroo, despite the company downgrading its expectations for sales growth and upgrading its profit forecasts. The uplift is hugely welcome given that the shares are already close to record lows, and given a lot of pessimism is already in the price. Gross Transaction Value (GTV) saw an increase of 8% year on year, with the UK operation outperforming international markets, rising by 11%. Consequently, Deliveroo downgraded its full year guidance on GTV growth to between 4% to 8%, due to concerns about consumer disposable income. There was some good news as EBITDA margins were revised higher to between -1.2% and -1.5%, which suggests the company is making progress on reducing its costs by way of lower marketing spend. Holiday Inn owner Intercontinental Hotels Group is sharply lower after reporting its Q3 numbers, which were by and large a decent set of numbers. Q3 comparable hotel RevPAR rose 28%, with US business travel back at pre-pandemic levels. The business in China has continued to act as a drag with RevPAR was down 20% vs 2019 levels, with occupancy rates at 55%. The share price fall appears to be being attributed to the departure of CFO and Head of Strategy Paul Edgecliffe Johnson who is leaving to join Flutter. US US markets have edged higher in early trading as we head into the weekend, helped by a retrenchment in short term yields on speculation that a November rate rise of 75bps might prompt a pause or a slowdown in the pace of the Federal Reserve’s rate hiking cycle, from December. This retreat in 2-year yields appears to have been prompted by a trial balloon piece in the WSJ, that suggested just such a scenario. While this may well have a very short shelf life, it is nonetheless providing a decent end of week uplift, as we head towards the quiet period ahead of the next Fed meeting in November. Twitter shares have plunged on the open on reports that Elon Musk would cut the workforce by 75% as the deadline nears for completing the buyout, and amidst reports that US authorities could review the deal on National Security concerns. Snap once again looks set to be the canary in the coal mine for social media companies after reporting a poor set of Q3 numbers, with the shares plunging in early trade to a two year low. Q3 revenues came in at $1.13bn, which was still 6% higher than a year ago but slightly below expectations. This single digit rise was its lowest figure ever since it debuted in 2017, and even though the company reported a slight profit, investors appear unforgiving. The company also declined to offer guidance for Q4, with management citing an uncertain revenue visibility. The likes of Pinterest, Meta Platforms have also fallen in sympathy with Meta due to report next week. FX The pound has continued to come under pressure, and yields have pushed higher again on reports that the new fiscal budget plan might be delayed due to the resignation of Liz Truss as Prime Minister, while markets are also uneasy about the outcome of the new leadership election in what could be a run-off between ex-Prime Minister Boris Johnson and Rishi Sunak. The fear is that the Conservative party in its current form is so riven by partisanship that anyone who takes over, whether it be Rishi Sunak who appears to be favourite as is widely being predicted, there will always be one faction who will be unhappy if their candidate doesn’t win, which means there will always be those working in the background to undermine the winner. Jeremy Hunt, the current Chancellor is working on the assumption that the 31st October deadline will be kept, however any new PM might have a different view.  Any delay is unlikely to be well received by the Bank of England who will have to make a decision on interest rates...