August 31, 2023

“The Dollar fell to a two-week low yesterday  as softening economic data indicates a labour market that is beginning to cool. All eyes will be on the Eurozone and US inflation figures later today as central banks mull over whether to continue with monetary policy tightening or to initiate a pause.”

Tim Hallinan – Trading Director

Main Headlines

On Wednesday, the Biden administration took a significant step, broadening mandatory overtime pay coverage to include 3.6 million salaried employees. This move went beyond a previous Obama-era initiative that was invalidated by the courts. In a separate development, a US judge announced consideration of postponing the criminal fraud trial of Sam Bankman-Fried, scheduled for October 3rd. This decision came in response to concerns raised by Bankman-Fried’s legal team about inadequate time to review the extensive evidence necessary for his defence. The judge indicated a potential five-month delay, prompted by the alleged unavailability of evidence-containing hard drives from Brooklyn’s Metropolitan Detention Center, where Bankman-Fried is held.

In the UK, businesses are exhibiting the highest confidence levels since before the Russia-Ukraine conflict, with plans to continue increasing prices and employee wages. This poses additional concerns for the Bank of England due to heightened inflation worries. Despite other surveys indicating economic deceleration, the Lloyds Bank Business Barometer witnessed a significant 10-point surge to 41% in August, marking its peak since February 2022.

GBP

Sterling is stronger against the Euro and weaker against the Dollar in early trade. Bank of England Chief Economist Huw Pill said this morning that the central bank would ‘see the job through’ in order to bring inflation down to the 2% target. He contended that there is no room for complacency and that some indicators of underlying inflation pressures had developed less favourably recently, but also recognised the risks that monetary policy which is too restrictive may inflict unnecessary damage to the economy.

EUR

The Euro is weaker than most major currencies overnight. The Eurozone released its CPI Flash estimates this morning, which measures the weighted average change in the price of goods purchased by consumers over the past year. The core figure – excluding volatile goods such as food and energy – met market forecasts with a slight decline at 5.3% down from 5.5% last month, whilst the headline figure remained the same as last month. The stubborn inflation data has led traders to price in a now 60% chance of a rate hike from the ECB next month.

USD

The Dollar is stronger than most major currencies in the early morning trade. A raft of data is expected from the US today – both new unemployment claims data and the Federal Reserve’s preferred Core PCE Price Index inflation measure are due this afternoon. Market consensus suggests broadly stable 0.2% month-on-month increase in consumer prices and a slight softening in the labour market compared to last week’s 230,000 figure with 236,000 new unemployment claims.

Markets

European shares edged higher as speculation the Federal Reserve is nearing the end of its tightening cycle in the US offset signs of hotter-than-expected inflation in the euro zone. Europe’s Stoxx 600 benchmark rose 0.2%, trimming its monthly retreat. UBS Group AG jumped more than 7% after posting the biggest-ever quarterly profit for a bank as a result of its emergency takeover of Credit Suisse Group AG. US equity futures were steady.

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

7:00 a.m.: Finland 2Q GDP
8:00 a.m.: Germany July Retail Sales
8:00 a.m.: Denmark 2Q GDP
8:45 a.m.: France 2Q GDP; Aug. CPI
9:00 a.m.: ECB’s Schnabel speaks
9:15 a.m.: Fed’s Bostic speaks in South Africa
9:15 a.m.: BOE’s Huw Pill speaks
9:55 a.m.: Germany Aug Unemployment
10:00 p.m.: Italy July Unemployment
10:00 p.m.: Poland 2Q GDP; Aug. CPI
11:00 a.m.: Euro-area Aug. CPI
11:00 a.m.: Italy Aug. CPI
1:30 p.m.: ECB publishes July meeting minutes
2:30 p.m.: US Initial Jobless Claims
2:30 p.m.: US July Personal Income, Personal Spending
2:30 p.m.: US PCE Core Deflator
3:00 p.m.: Fed’s Collins speaks
6:00 p.m.: ECB’s Guindos speaks

Corporate Events

Earnings include Pernod Ricard, Broadcom, Dell, VMware, MongoDB, SentinelOne, Dollar General

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