U.K. Consumer Spending Faces Energy Shock Drag — Market Talk

1015 ET - Rising energy bills are likely to weigh on U.K. consumption growth next year, Matt Swannell and Alexander Harvey at Oxford Economics say in a note. This will particularly affect discretionary spending among lower-income households, the analysts note. "Weak income growth will leave households with little protection against higher bills even as they try to reduce their energy consumption," they say. Based on current wholesale gas prices, the analysts expect energy bills to rise by around 20% in January, increasing the annual bill for a typical household by close to 40%. "Unlike during the previous energy price shock, we don't expect strong earnings growth at the bottom of the income distribution, offering little cushion to discretionary spending among these households," they say. ([email protected])1011 ET - The U.S. dollar eases as pressure fades across global bond markets and Treasury yields recede, Infinox's Thadeu Dos Santos says in a note. Crude oil prices softened on expectations that more Russian diesel exports are coming, easing inflation concerns, though the ongoing conflict in the Middle East is capping both the downside on oil prices and the decline in borrowing costs, Dos Santos says. Wednesday's CPI report will probably guide the dollar's next move, he says. An increase in the core measure would break a series of recent declines and reinforce concerns that underlying inflation is still elevated, Dos Santos says. ([email protected])0949 ET - China's export surge is intensifying competition for advanced economies, particularly Europe, and could result in the next global crisis, Capital Economics' Neil Shearing says in a note. "China now accounts for just under one fifth of global goods exports, compared with just over 5% in the early 2000s," he says. While excess manufacturing capacity could reduce global inflation by 0.1-0.2 percentage points, China's growing dominance in high-tech industries threatens European market share and manufacturing jobs. This could reduce eurozone GDP growth by 0.1-0.2 percentage points annually, Shearing says. Rising trade imbalances also pose risks, as China's record current-account surplus is matched by deficits elsewhere, especially in the U.S. "Left unchecked, these could sow the seeds of the next global crisis." ([email protected])0940 ET - More Canadians are venturing across the border to the U.S., though travel remains well below where it stood before the trade war erupted between the countries. A preliminary estimate of international arrivals to Canada by air and land totaled 5.3 million in September, up 9.5% on-year. Canadian-resident return trips from abroad were up 5.6% at 2.9 million, including 1.9 million journeys by air and automobile to the U.S., up 6.8% on-year. That marks a sixth consecutive monthly rise in U.S. travel for Canadians. Trips by vehicle were up 5.6%, but 31.1% below September 2024, while trips by air increased 11.6% but remained down 18.7% from the level two years earlier. U.S.-resident trips to Canada increased 17.2% on-year to hit 1.8 million, an eighth straight increase. ([email protected]; @RobbMStewart)0923 ET - Bitcoin rises as it appears to be decoupling from lower U.S. equity futures and a drop in Asian chip stocks, Block Scholes analyst Thahbib Rahman says in a note. Bitcoin is also supported by Strategy's $22 million purchase of the cryptocurrency on Monday, he says. Moreover, options markets indicate investor sentiment towards crypto is improving. Demand for short-dated bitcoin put options, which offer protection against future potential falls, has eased. However, the skew in options still favors puts over call options which bet on gains, he says. Bitcoin rises 0.2% to $83,202, LSEG data show. ([email protected])0901 ET - Chicago Fed president Austan Goolsbee says the ultimate settling place for interest rates is a someplace a fair bit below where we are now. In an interview published by Semafor, Goolsbee says rates can come down if the Fed gets evidence that inflation is on a path back to 2% with full employment. "But the more you see services inflation going up and the more you see AI demand jumping out of its lane and overheating the rest of the economy, then it's going to be a little dicier," he says.([email protected])0855 ET - Easing crude prices and a weaker U.S. dollar are giving bitcoin support--with the token up 0.3% to $83,275, according to LSEG data. But there's other key sources of support that are missing, says Dat Tong of Exness in a note. "The rebound lacks strong institutional support," says Tong. "Spot Bitcoin ETFs recorded USD 65 million in net outflows on Monday, taking October flows to negative USD 451 million." Demand has been an issue for bitcoin on both the retail and institutional sides, exaggerating price movements due to the low volumes being traded but providing little lasting momentum for bitcoin in either direction. Ethereum falls 0.7% to $2,501, and XRP is down 0.5% to $1.36. ([email protected])0850 ET - Treasury yields bounce from early lows but remain below Friday levels, as U.S. bond markets start a shortened week bracing for key inflation data. September CPI, due tomorrow, is expected to accelerate, with annual inflation at 3.6%, up from August's 3.4%. Markets still price a Fed hold this month, however. Oil slips 2%. Declining yields and oil prices weigh on the dollar. The WSJ Dollar Index falls 0.2%. The 10-year Treasury yield falls to 5.189% from 5.243% Friday. The two-year slips to 4.778% from 4.789%. ([email protected]; @ptrevisani)0742 ET - Sterling requires a fresh positive catalyst to build upward momentum versus the dollar as the prospect of the Bank of England raising interest rates is priced in, XS.com's Simon-Peter Massabni says in a note. Further warnings from BOE policymakers about higher inflation might only be enough to keep sterling within its current range versus the dollar, he says. Sterling continues to face broad-based dollar strength due to expectations the Federal Reserve will raise rates further. The next point to watch is whether upcoming data changes the balance of expectations between the BOE and Fed, he says. U.S. inflation data are due Wednesday followed by U.K. August growth figures on Thursday. Sterling rises 0.3% to $1.3239. ([email protected])0655 ET - National frameworks for regulating global stablecoins remain untested in times of severe stress and insolvency, an international body monitoring financial stability says. Stablecoins are digital tokens pegged to the U.S. dollar or other currencies. "The interaction of regulatory frameworks across borders remains uncertain or undefined in many jurisdictions, including regarding the treatment of foreign-issued stablecoins," writes Bank of England governor and Financial Stability Board chair Andrew Bailey. He adds that global stablecoin arrangement may operate across multiple entities and regulatory regimes, while mechanisms for crisis management in times of stress or insolvency remain immature. ([email protected])0653 ET - Investor expectations for a boom, or above-trend growth combined with above-trend inflation, in the global economy reached the highest level in more than four years in October, according to Bank of America's global fund manager survey. A net 47% of investors expect a boom in the next 12 months, up from 38% in September and the most since February 2022. However, a net 45% of investors expect stagflation, or below-trend growth combined with above-trend inflation, albeit down from 50% in September. ([email protected])0620 ET - The Korean won and Taiwanese dollar are among Asia's worst-performing currencies as the benchmark Kospi and Taiex lead regional equity markets lower, weighed by a selloff in chip stocks. The Philadelphia Semiconductor Index fell 2.7% overnight. "In our view the dominant theme was a memory selloff," Saxo Bank says in a note. South Korean memory-chip giants Samsung Electronics and SK Hynix slumped 7.4% and 10%, respectively, dragging the Kospi down 5.5%. Taiwan's Taiex shed 1.9% as index heavyweight TSMC, the world's largest contract chip maker, lost 2.0%. The U.S. dollar rises 0.3% to 1,339 won, on track for its strongest daily gain in nearly two weeks, according to LSEG. The dollar climbs 0.7% to NT$32.15, on course for its biggest advance in more than seven months. ([email protected])