Fresh Fears for UK Economy As UK CPI Returns to 40-year Highs

Focus this week has once again swung back onto the cost-of-living crisis in the UK. The latest data from the ONS this morning showed that CPI rose back to July’s 40-year highs of 10.1% last month following a decline to 9.9% in August. The September figure raises grave concerns over how UK households will struggle over the coming months, particularly with colder weather set to see a spike in energy usage.

Expectations of more aggressive action from the BOE looked to have cooled somewhat on the back of new UK Chancellor Jeremy Hunt essentially ripping up his predecessor’s controversial mini-budget. However, today’s data shows the BOE is still fiercely battling rampant inflation in the UK, underscoring the need for higher rates once again.

Key Factors for Today

- USD rises on hawkish Fed comments and safe-haven demand
- UK CPI returns to 40-year highs – keeping hawkish BOE expectations entrenched
- Equities rally pauses as focus returns to central bank tightening
- Safe-havens lead in FX, risk FX falling
- Oil & metals lower amidst USD rally

Coming Up

- Oil EIA Inventories
- CAD Canadian CPI
- EUR Eurozone final CPI

Equities Recovery Pauses Amidst USD Uptick

Equities are seeing a softer start across the European open on Wednesday with the US Dollar finding a more bid tone today. A sharp increase in UK CPI and expectations of a hawkish eurozone CPI report today are refocusing traders on central bank tightening expectations ahead of the ECB next week and BOE in early November. With fed commentary consistently hawkish, equities traders are bracing for the next wave of tightening.

Netflix Subscriber Rebound

Shares in the streaming giant spiked higher yesterday in response to a solid set of Q3 earnings. Netflix posted EPS of $3.10, well above the $2.4 forecast on revenues of $7.92 billion, again beating estimates for a $7.9 billion result. However, the main focus of the report was the news that the company saw its subscriber base jump by 2.4 million in Q3, following two consecutive quarters of contractions. However, initial gains were limited as investors expressed some concerns over lower revenue guidance for Q4 linked to the impact of a stronger Dollar.

Risk FX Tumbling as Safe-Havens Rally

In FX, resurgent strength in USD is weighing heavily on risk currencies today. AUD & NZD have come under fresh pressure linked to the downside we’re seeing equities and commodities while safe-haven bids are up for JPY and CHF. On today’s data sheet, Eurozone and Canadian CPI will be the key data focus, with both readings set to keep hawkish central bank expectations firmly anchored near-term. Also, worth keeping an eye on Fed’s Bullard who speaks later following further hawkish comments from Fed’s Kashkari yesterday who urged the Fed to press on with tightening given that core inflation is still creeping higher.

Metals & Oil Fall on Higher USD

In the metals and commodities space, both gold and silver have come back under pressure today with gold breaking down to fresh lows on the week as the US Dollar turns higher again. Oil prices are stable for now following heavy losses yesterday amidst reports that Biden might release as much as 100 million barrels of oil from the US SPR. However, this figure has now been confirmed as 15 million barrels initially with the promise of more if necessary. Today, focus turns to the latest EIA inventories release expected to show a surplus of 2.5 million barrels which should keep prices pressured today.