Spreadex Market Update
OECD Warns of UK Recession – UK To be Worst Performer In G7 Next Year
In its latest global outlook report, released yesterday, the OECD was fairly damming in its assessment of the UK economy. The OEC warned that the UK is facing a recession which the rest of the G7 has managed to avoid and is likely to be the worst performer. The OECD noted that, in Europe in particular, the Russia-Ukraine conflict was having uneven impact on economies with Germany and the UK suffering more than others due to higher energy prices and higher trade costs.
While the OECD was more upbeat on the global economy as a whole, which it now forecasts to grow around 2.2% next year, the UK economy is forecast to shrink by 0.4% in contrast. This outlook comes fresh on the back of the UK’s Office for Budget Responsibility (OBR) last week forecasting that the domestic economy would shrink by 1.4% next year.
Key Factors for Today
- USD softens ahead of FOMC minutes later today, plenty of two-way risk
- OECD slashes UK economic outlook
- Equities bounce back as yields soften and USD falls
- NZD rallies on record RBNZ rate hike – safe havens weaken on fresh risk rally
- Oil and metals stabilise as USD falls
Coming Up
- USD/GBP/EUR - Services, Manufacturing PMIs
- USD – Durable goods
- CAD – BOC’s Macklem speaks
Equities Turn Higher as USD Falls
Equities markets turned higher yesterday, helped by a weaker US Dollar and an uptick in oil prices. In the US, some brighter earnings releases yesterday helped bolster sentiment, taking focus away from Fed rate hike expectations. However, these return today with the release of the November FOMC minutes later today. Ahead of that we also have flash PMIs for the US, UK and EZ which are sure to be market moving if fresh weakness is seen. The Dow, the Nikkei and the FTSE are each breaking out to fresh highs this week while the DAX is currently testing last week’s highs.
NZD Rallying Following Hawkish RBNZ Meeting
In FX, a softer USD into the middle of the week has seen a reversal of recent themes with risk currencies bouncing back firmly. NZD has been among the top performers so far today on the back of the November RBNZ meeting overnight. The bank hiked rates by 75bps as expected, its largest ever hike, and signalled further tightening to come as it continues to battle excessive inflation.
Safe Haven FX Weaker
The uptick in risk sentiment is keeping safe havens pressured with JPY and CHF among the weakest performers today, along with CHF. However, tonight’s FOMC minutes will likely be make or break for risk sentiment with a dovish tilt likely to send USD lower and any unexpected hawkishness to see USD climb again.
Metals & Oil Stabilise As USD Weakens
In the metals and commodities space, both gold and silver are attempting to bounce back mid-week following earlier weakness. Both metals are sitting off recent highs for now though the fresh downturn in USD is helping underpin the metals market here ahead of the FOMC minutes tonight. Crude price are trading in the green across the European open today. Crude futures bounced back as OPEC denied rumours of a fresh production hike, turning the focus back to USD flows and today’s EIA update which is forecast to report a 2.6 million barrel drawdown.
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