AO Bulletin |  UK in recession, eurozone inflation at 10.6% – AdviseOnly

AO Bulletin | UK in recession, eurozone inflation at 10.6% – AdviseOnly

The highlights of the week

Cop 27, between compromises and knots still to be resolved. The Cop27 in Sharm El-Sheik closes on Friday 18 November. At the time of writing, the delegates of the 198 participating countries are seeking an agreement on the final draft text: the goal of limiting global warming to 1.5 degrees remains in the document, but many controversial issues are still unresolved. Among these, the issue of the use of fossil fuels and the compensation mechanism for developing countries for the damage caused by climate change (of which they are less responsible than developed countries).

Budget law coming soon. The next Italian budget law should be around 30-32 billion euros. According to rumors, discussions are underway on an amnesty to encourage the return of capital from abroad, but the Treasury has assured that there will be no penal amnesty.

Btp Italia with a bang. The eighteenth edition of the Btp Italia closed with a collection close to 12 billion euros. This is the sixth best result ever for the issue, this year particularly tempting for families and cash drawers, hungry for low-risk instruments with which to protect their savings from the bites of theinflation.

UK in recession. The Chancellor of the Exchequer Jeremy Hunt said that the United Kingdom – where inflation shot up to 11.1% in October – has entered a recession and that in 2023 GDP is expected to fall by 1.4%. To deal with the situation, Hunt has proposed a £55 billion plan, with tax increases and spending cuts.

New hikes in sight. St. Louis Fed chairman James Bullard said it might be appropriate to hike rates to 5-5.25% to tame inflation. Currently, following the latest hike of 75 basis points, US interest rates are in the range between 3.75% and 4%.

Is the Fed cure starting to work? In October, producer prices in the United States increased by 0.2% from the previous month and by 8% on an annual basis, less than estimated by experts.

Inflation double digits in the Old Continent. In the euro area, inflation reached 10.6% year on year in October, up from 9.9% in September. For the European Union the figure is even higher: +11.5%. According to the president of the European Central Bank, Christine Lagarde, the risk of a recession in the euro area is increasing. Meanwhile, in the third quarter of this year, the GDP of the euro area increased by 0.2% compared to the previous three months. In the second quarter, growth was 0.8%.

Russia-Ukraine, there is no peace. Russian attacks continue in Ukraine, while during the week tensions came close to escalating after two Russian-made missiles hit an agricultural area in Poland. The US has used a soothing tone, immediately ruling out that it was a deliberate Russian attack. The official version, which made it possible to overcome the incident, is that it was a missile fired by the Ukrainian defense.

G20 in Bali. The G20 meeting in Indonesia was dominated by the topic of Russian aggression in Ukraine. Meanwhile, the US and China seem intent on reopening dialogue on sensitive issues such as Taiwan and trade restrictions, while all leaders share concerns about inflation and a possible recession.

Virtual currencies under pressure. The cryptocurrency platform FTX made the protagonist of the economics pages last week by declaring a maxi-bankruptcy, which would have involved about 1 million investors (including institutional and retail) for a potential loss estimated at 30 billion dollars. An earthquake capable of shaking the entire crypto sector.

Donald Trump tries again. Donald Trump has filed the papers for his candidacy in the 2024 elections with the federal electoral commission, formally running for the White House.

Declining demand. The Organization of the Petroleum Producing Countries (OPEC) has cut its forecast for growth in world oil demand for 2022. It is the fifth time since April.

How the markets moved

All in all, a positive week for the European stock markets, despite a slide on Thursday (both on Wall Street and in the Old Continent), after the British finance minister presented the autumn budget announcing the recession, while the St Louis has come the prediction of more aggressive hikes.

Among the issues influencing investors’ moods remain the moves by central banks to tame inflation (with the president of the ECB, Lagarde, who spoke of an “increased risk of recession” envisaging further rate hikes) and the unstable environment geopolitical where, in addition to the war in Ukraine, there is the launch of an intercontinental missile by North Korea in the waters of Japan.

In Italy, meanwhile, Fitch’s judgment on Italy is expected on Friday evening: the forecasts are for a confirmation of the ratings to BBB with stable outlook.

Spread at 194 points. On Friday morning, the yield differential between the BTp benchmarks ten-year Italian and equal deadline German stood at 194 basis points from 191 basis points the day before.

Raw materials on the roller coaster. The price of gas in Amsterdam is falling further, settling at 111.4 euros per MWh, while oil is volatile after the recent drops: the Wti in January trades at 81.6 dollars and the Brent in the same month at 89.7 dollars.

Stock indices Weekly performances Performance since the beginning of the month
FTSEMIB -0.22% 14.17%
MSCI Europe -0.71% 7.46%
S&P 500 -1.60% 2.15%
Nikkei 1.04% 4.91%
Shanghai Composite CIS 300 3.84% -4.57%
Bond indices Weekly performances Performance since the beginning of the year
10-yr yield on Italian Bonds (BTPs) 3.96% 1.17%
10-yr yield on US Treasuries 3.78% 1.51%
10-yr yield on German Bunds 2.02% -0.18%
10-yr yield on Eurozone bonds 2.02% -0.18%
Spread Btp-Bund 187.86 points 59.79%
Raw material Weekly performances Performance since the beginning of the month
Gold 54.53 eur/gr (-1.32%) 1.33%
Wti oil 78.72 usd/barrel (-0.40%) 0.63%
Currencies Weekly performances Performance since the beginning of the month
Eur/Usd exchange 1.0363 (1.45%) 5.23%
Eur/Gbp exchange 0.8689 (0.59%) 2.12%

Market indices. Data updated at 17.00 on 11/18/22.

Next week’s agenda

In terms of macro data to be published next week, we point out the minutes of the meeting of the FOMC – monetary policy arm of the Fed – on Wednesday. Crude oil stockpiles, October new home sales, building permits issued and initial jobless claims also came from the US on the same day.

Looking to Europe, watch out for November’s manufacturing purchasing managers’ index in Germany and the UK, where the composite PMI is also expected.

Thursday 24 November Wall Street will be closed for Thanksgiving Day (for the same reason, the US markets close at 13.00 on Friday), while theIfo index on business confidence in November. Finally, again from Germany, the GDP for the third quarter of 2022 is expected on Friday.

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