Calm or Calamity?

World Markets

GBP: Last week’s reports that the British government is preparing to do a major U-turn on planned tax cuts have helped ease fears over public finances. In fact, Kwarteng was dismissed by Truss on Friday as she tried to salvage a premiership that is less than two months old by reinstating a planned increase in corporate income tax that Kwarteng had scrapped. However, the Gilt market had continued to sell off, after Truss stood by most of Kwarteng’s other measures. Nonetheless, new British finance minister Jeremy Hunt will announce tax and spending measures later today – two weeks earlier than previously scheduled – after the original economic plan put forward by Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng roiled financial markets. Additionally, British government bonds will resume trading without the support of the Bank of England’s emergency bond-buying program, which ended last Friday. That said, any stock market gains are likely to be limited as investors continue to survey the deteriorating economic outlook, as well as a continuation of tightening monetary policies around the world. Furthermore, investors will also be looking at Wednesday’s U.K. inflation data for September, which is expected to hit double digits amid a cost-of-living squeeze while retail sales figures on Friday are expected to point to a decline in consumer spending.

EUR: European stock markets are expected to open marginally higher, helped by plans from the U.K. government to shore up confidence in its fiscal policies after weeks of turmoil. Looking forward, the economic data slate is largely empty, but Italian consumer prices are expected to remain elevated in September, climbing 8.9% on the year. Many analysts expect this to add further pressure on the European Central Bank to continue hiking interest rates. Ultimately, ECB policymakers Luis de Guindos and Philip Lane are set to speak at different events later today, and their comments will be studied for clues of future moves.

USD: In the wake of last week’s hotter-than-expected U.S. inflation data, focus will turn to the housing market with reports due on building permits, housing starts and existing home sales. The economic calendar also includes reports on industrial production, manufacturing index, and initial jobless claims. Regional Fed presidents Neel Kashkari, Charles Evans and James Bullard are also due to make what will be closely watched appearances. Ultimately, Bullard said last week’s CPI figures showed that inflation had become “pernicious” and left the door open to 75-basis point rate hikes at the Fed’s upcoming meetings in November and December but added that it was too early to make that call.