UK Inflation and London Stock Exchange!

UK Inflation and London Stock Exchange!
Analysis
Ahura Chalki
Author:
Ahura Chalki
Published on: 23.03.2022 16:54 (UTC)
Post reading time: 2.62 min
353

Pound losing, FTSE goes slowly lower!


Today is UK day with lots of economic data that we had, and Mr. Bailey's speech that will be a few hours later. However, the day started with positive sentiment from Asia, while yesterday also Wall Street closed higher. 


Following Fed Chairman Powell's comments on Monday, several FED officials also had hawkish remarks on Tuesday, one after another. Among them, St. Louis Fed President Bullard appears to be the most hawkish. He said that a 50 basis point interest rate hike will occur, continued by saying that there is no reason not to shrink the balance sheet immediately. Cleveland Fed chair, Mrs. Loretta Mester also supports the idea of raising interest rates by 50 basis points, leaning towards the end of this year. San Francisco Fed governor Daly added that it is time for the Fed to raise rates to a neutral level.


The hawkish stance of the Fed chair and other officials also contributed to the continued sell-off in bond markets. Overall, Treasuries faced perhaps the worst quarterly decline since 1973. Bloomberg reports that its US Treasury index has fallen more than it did in the early 1980s. In addition, judging from the further narrowing of the yield gap between 5 & 30-years bonds, economic growth can be slower if the Fed tightens policies, and may even face the risk of recession.


While the last night after the official's comment Wall Street closed higher, earlier today Asian Stock markets also hit three-week highs as cash fleeing tumbling bond markets flowed back toward big tech and other beaten-up sectors. But in Europe, higher energy price is still killing with Ukraine's conflict's potential to further hit supplies keeping oil and commodity prices even higher.


And now, with UK inflation numbers for February, these concerns even getting more and more, as these data cover just one week of the conflict and higher prices in the last week of February. According to the data published earlier, inflation in the United Kingdom hit a 30-year high at 6.2% in February. And now, with current energy prices, expecting even higher numbers in the following months is much likely. 


Last week in the news we read about substantial giveaways on fuel taxes in France, Italy, and other European countries, and now market participants are expecting to see the same plan in the UK government’s spring budget statement. 


After mentioned news and data, British Sterling started to lose most of its gains since the beginning of the week. Cable is now again back under key support at 1.3200 and if it can close the daily candle under this level, with these fears about the future of the British economy, to see lower levels in the GBPUSD chart is so realistic. 



On the stock markets, economists believe in lower economic growth in 2022 compared with earlier expectations. Therefore, at least for now, and as long as the ongoing conflict in Ukraine increases the raw material, and energy prices, seeing higher levels in the GB100 is so unreal. Especially, knowing that the British biggest trading partner is the Eurozone, which is the biggest victim of the war.