November 01, 2023

“A vast series of US market movers packs the calendar today, culminating in the Federal Reserve’s November rate decision later this afternoon. Markets are certain of policy inaction, but with possible tightening in December and January in focus, investors will hang on to Jerome Powell’s every word, particularly relating to dovish remarks from officials in October on the impact of longer-term bond yield rallies.”

Tim Hallinan – Trading Director

Main Headlines

A US jury has found the National Association of Realtors and certain residential brokerages, including units of Warren Buffett’s Berkshire Hathaway, liable to pay $1.78 billion in damages for conspiring to artificially inflate commissions for home sales. This verdict, issued by a federal jury in Kansas City, Missouri, may have significant implications for the real estate industry, potentially disrupting long-standing practices that have allowed real estate agents to increase commissions as home prices and mortgage rates rise.

The UK is hosting the inaugural AI Safety Summit today, bringing together governments, academia, and leading tech companies to discuss the risks and challenges associated with artificial intelligence. The summit is part of Prime Minister Rishi Sunak’s efforts to establish the UK as a hub for AI safety and development, positioning the country as an intermediary between the US, China, and the EU. The guest list includes world leaders, prominent tech executives such as Elon Musk and Sam Altman, and academics. The event is taking place at Bletchley Park, the historic site known for its role in World War II codebreaking.

GBP

Sterling continues to swing at the mercy of external events this week. Data released yesterday showed that the number of UK firms in ‘critical financial distress’ grew 25% in the last three months, as British businesses are set for their worst year for insolvencies since 2009 amid the Bank of England’s historical tightening cycle. This morning, Nationwide’s House Price Index saw house prices rise 0.9% in October despite an analyst forecast of -0.3%, although this was more a story of constrained supply rather than a stabilisation in the market, given the reluctance of homeowners to exit lower fixed-rate mortgage agreements. Final revisions to the manufacturing PMI are the only remaining data point due today, which printed firmly in contraction at 45.2 last week. Markets, however, will be firmly focused on the Bank of England Governor Bailey’s rhetoric at the policy decision press conference tomorrow afternoon.

EUR

The euro failed to hold on to its strong gains made yesterday morning, instead notching a loss as an overall dovish dataset and a strong dollar weighed down on the common currency. EUR/USD initially gained steam as various output and inflation data was released across the eurozone, despite consolidated CPI falling to its lowest figure in two years at 2.9% and preliminary Q3 GDP heading in the direction of a technical recession, contracting by -0.1% in the third quarter. Markets seemingly latched on to the still-elevated 4.2% core CPI figure in the beginning but, ultimately, the data painted an evidently dovish picture of a fragile economy and steady disinflation, bolstering the view that the ECB has reached terminal rates and may have to cut as soon as the spring or summer. Today is a bank holiday across many euro area states, so expect the US to dominate currency movements.

USD

The dollar remains firm this morning ahead of the Federal Reserve decision, after strong labour cost data lifted the greenback yesterday afternoon. An initial fall in Treasury yields swung to a gain across the curve on the release of the consensus-beating Employment Cost Index, which is a Fed-favoured wage inflation gauge that expanded by 1.1% in the previous quarter. This sign of stubborn inflation resulted in a bullish dynamic that was then boosted by a strong, although falling, consumer confidence survey. The Federal Reserve policy decision is the headline feature in today’s macroeconomic diary – investors will scrutinise every accompanying word to an almost certain policy hold, with a possible official acknowledgement of non-monetary financial tightening driven by long-term yields the key tilt to look out for, after informal dovish remarks from Fed officials reduced hopes of further rate rises in early October. Investors have little time to mull over the potential outcomes, however, with a huge data day that includes ADP non-farm payrolls, the ISM manufacturing PMI, the JOLTS job openings survey, and crude oil inventories.

Markets

Treasuries inched higher as investors awaited the Federal Reserve decision and the government’s new borrowing plan. Asian equities made gains, particularly in Japanese stocks, with the Topix benchmark recording its strongest rally in a year. European futures rose in anticipation of earnings reports from major companies, with positive results from UK retailer Next and pharmaceutical company GSK providing support. However, US stock futures slipped after the previous session’s gains.

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

8:00 a.m.: UK Oct. Nationwide House Prices
8:30 a.m.: Sweden Oct. Manufacturing PMI
10:30 a.m.: UK Oct. Manufacturing PMI
11:00 a.m.: UK sells gilts
1:15 p.m.: US Oct. ADP Employment
1:40 p.m.: SNB’s Jordan speaks
2:45 p.m.: US Oct. Manufacturing PMI
3:00 p.m.: US Oct. ISM Manufacturing
3:00 p.m.: US Sept. JOLTS, Construction Spending
7:00 p.m.: FOMC Rate Decision
7:30 p.m.: Fed’s Powell speaks
Fabio Panetta starts six-year term as Bank of Italy governor

Corporate Events

Earnings include Tata Steel, GSK, CVS, Estee Lauder, Qualcomm, PayPal, Airbnb, Mondelez, Electronic Arts, SolarEdge, Janus Henderson, Asos, Aston Martin, AIG, Apollo, Kraft Heinz, MetLife

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