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Truss backs up tax cut plans

Edward Bell - Senior Director, Market Economics
Published Date: 30 September 2022


British prime minister Liz Truss backed up her government’s tax cut plans announced last week, saying that taking “controversial and difficult decisions” was necessary for long-term growth in the UK. Explicit in pushing back against any consideration to reverse the tax cuts, Truss said that the mini-budget announced was “the right plan” even though it has received considerable criticism from the IMF and required emergency action from the Bank of England to step in and support the gilt market to avoid destabilization of the UK pension providers.

Germany’s preliminary September inflation print came in faster than expected, rising by 10.9% y/y and up 1.9% m/m. The September reading represents the first time inflation in Germany has exceeded 10% since it had been a member of the Eurozone and came as the government cut back on discounted costs for fuel and transport. Germany has also agreed to set a cap on gas prices by making use of its Economic Stabilisation Fund and borrowing EUR 150bn. The pick-up in German inflation will likely cement expectations of another large hike from the ECB following on from the 75bps hike taken at the start of September. Markets have essentially priced in another full 75bps for the end of October ECB meeting.

US initial jobless claims for the week ending September 24 fell to their lowest level in five months at 193k. That was 16k lower week/week and well below market expectations for 215k. Claims are below their long-run average as the US labour market continues to prove itself immune—so far—to rate hikes from the Federal Reserve. Continuing claims also dropped to 1.35m in the prior week.

The official PMI numbers for China showed an economy still struggling under the effect of the country’s Zero-Covid policy. The manufacturing PMI for September managed to increase but to 50.1, barely above the level that separates expansion from contraction. The non-manufacturing index, which includes services and construction, fell sharply though to 50.6 from 52.6. a month earlier. The Caixin survey of private firms was worse than expected, however, with the manufacturing index down to 48.1 from 49.5 a month earlier.

Inflation in Dubai rose by 6% in August, slower than the 7.1% increase recorded for July. A monthly drop in transport prices, caused by lower retail fuel costs, along with a decline in recreation and culture prices helped to bring the pace of price growth lower last month. Petrol prices were lowered for September by between 15-16% and should help to bring headline CPI growth lower again. Our estimate for UAE inflation in 2022 stands at 4.5%.

Today’s Economic Data and Events

  • 08:30 RBI Repurchase rate: forecast 5.9%
  • 10:00 UK Nationwide house price y/y September: forecast 9.9%
  • 10:45 FR CPI y/y September: forecast 6%
  • 13:00 EC Unemployment rate August: 6.6%
  • 13:00 EC CPI y/y September: forecast 9.7%
  • 16:30 US personal spending August: 0.2%
  • 16:30 US PCE deflator August: forecast 6%

Fixed Income

  • US Treasuries continued to move in a wide range overnight, of about 10bps top to bottom, even if the close to close price movement was relatively limited. The 2yr UST yield ended the day up about 6bps at 4.1924% while the 10yr added 5bps to 3.7856%. Most of the action in bond markets remained in the UK where gilts responded negatively to Prime Minister Liz Truss apparently doubling down on her government’s tax cut plans. The 10yr gilt yield added 13bps to settle at 4.13%. Across the rest of Europe bonds were also offered heavily with the 10yr bund yield adding 6bps to 2.174% while Italian bonds fell sharply, with yields up 13bps to 4.637%.


  • There was a substantial pull back in the dollar overnight, led by sterling as the British prime minister, Liz Truss, may reportedly meet with the country’s Office of Budget Responsibility, taken as a step to perhaps reconsider some of the expensive tax cut plans her government is implementing. GBPUSD rallied 2% to 1.1117, recovering its losses from the rapid sell-off at the end of last week.
  • EURUSD also had a strong day, rising by 0.8% to 0.9815 while USDJPY added 0.2% to 144.46. Commodity currencies lingered, however, with USDCAD up by 0.5% to 1.3680, AUDUSD falling by 0.3% to 0.65 and NZDUSD ended the day at 0.5727.


  • Equity markets crumbled again overnight with the Dow falling by 1.5% and the S&P 500 giving up 2%. Barring any substantial economic catalyst, the mood in the market appears negative for now, likely giving most days a downward bias in the absence of any positive development. European markets were softer as well with the FTSE trading lower by 1.77% and the EuroStoxx index off by 1.7%.
  • Asian markets have opened in the red today with the Nikkei down by about 1.5% and the Hang Seng sinking as the negative China PMI numbers weigh on the outlook.


  • Oil prices tumbled again overnight with Brent futures falling by 0.9% to USD 88.49/b and WTI giving up 1% to USD 81.23/b. Markets will be looking ahead to next week’s OPEC+ meeting where the producers’ alliance is reportedly planning to cut production though any cut would need to be meaningfully larger than the 100k b/d agreed for October if it is to shift sentiment in the market.

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