Morning Report

August 23, 2023

“Weaker than expected PMI reads from the UK and EU this morning has led to sell offs in the corresponding currencies. This volatility comes ahead of the US PMI read this afternoon, which is also expected negative, and the start of the Jackson Hole Symposium tomorrow.” 

Sam Cornford, Partner – Head of Trading 


Main Headlines

The Jackson Hole Economic Symposium begins tomorrow and could lead to considerable moves in currency markets, particularly with the lack of data this week. The Fed, European Central Bank, and Bank of England are still figuring out how much more they should raise their main interest rates, as the effects of previous rate hikes are yet to fully kick in. There’s also the worry of economic growth slowing down, and there are differing opinions within these banks about what lies ahead. They’ll have to decide how long to keep rates high to prevent prices from rising too quickly. Alongside this, investors are closely watching China to see how well Beijing is protecting its currency, as the current USD/CNY rate is causing concern for Chinese authorities. 

Pay raises given by British employers slowed down for the first time this year. This news might ease concerns at the Bank of England, who have been worried that rising wages are fuelling inflation. According to a survey released on Wednesday, the median basic pay increase in the three months ending in July dropped to 5.7%. This followed six consecutive quarters of over 6%. It’s worth noting that these pay raises are still not keeping pace with the rising cost of living. In July, consumer prices in the UK rose by 6.8%, down from 7.9% in June. The Bank of England recently increased interest rates to 5.25% in August to try and control this persistent inflation. They’re keeping a close eye on wage growth in the private sector and have said they’ll continue to raise interest rates if inflation remains a problem. 



Sterling is weaker than most major currencies this morning, particularly on the back of weaker than expected PMI data, with the Manufacturing down 26bp from expectations at 42.5 and the services down 22bp from forecast at 48.7. The Bank of England has cautioned that high interest rates are causing problems for indebted businesses, the most since 2009. About half of borrowing businesses may struggle to meet their debt payments by the end of the year, up from 45% last year. This comes as pressure grows on Jeremy Hunt to support the economy. Some in the Conservative Party are calling for tax cuts to boost growth, especially after the government’s lower-than-expected July borrowing figures. Douglas McWilliams, from the Centre for Economics and Business Research, recommends considering a cut in corporation tax to stimulate growth. 



The euro is weaker than the dollar and stronger than sterling this morning. Although the ECB is officially concerned about inflation, it’s become increasingly clear that parts of the eurozone are slowing down. While the ECB mainly looks at core inflation, today’s PMI data suggests that the eurozone’s economic outlook is getting worse, possibly pushing policymakers to decide to raise interest rates in September instead of waiting until later in the year. The biggest decline was the German Services data, down 42bp from expectations, reading at 47.3. The overall EUR Services figure was also worse than expectations, coming in at 48.3 against the expected 50.6. 



The dollar is well bid against most major currencies overnight. This week, traders have been closely watching the surge in U.S. yields, which reached their highest point in 16 years. It’s been the big focus as we get ready for the important Jackson Hole Symposium hosted by the Federal Reserve. Following the large moves in the European and UK PMI reads this morning, the same release from the USD this afternoon will be closely watched, with declines in both figures forecast. 



European stocks and US equity futures rose as investors awaited earnings from Nvidia Corp., the chipmaker at the heart of this year’s hype around artificial intelligence. Miners led the gains in Europe, with Anglo American Plc among those advancing as iron ore rose for a fifth day amid increasing speculation Chinese steel mills will ramp up output. The steel-making staple has jumped 12% since last Wednesday. 


Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Denmark Aug. Consumer Confidence Indicator
9:15 a.m.: France Aug. HCOB PMIs
9:30 a.m.: Germany Aug. HCOB PMIs
10:00 a.m.: Euro-area Aug. HCOB PMIs
10:30 a.m.: UK S&P Global/CIPS PMIs
10:30 a.m.: Iceland Monetary Policy
1:00 p.m.: US MBA Mortgage Applications
3:45 p.m.: S&P Global US Manufacturing PMI
4:00 p.m.: Euro-area Aug. Consumer Confidence
4:00 p.m.: US New Home Sales
6:00 p.m.: Russia July Factory Output, Weekly CPI
Hungarian President Novak to Meet Ukraine’s Zelenskiy
First Republican presidential primary debateCorporate Events 

Corporate Events

Earnings include Nvidia, Analog Devices, Snowflake, Splunk, Peloton  


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