November 02, 2023

“A tweak in the Federal Reserve’s official messaging left investors doubtful that the central bank will raise rates again last night, as Powell acknowledged the two-sided risks associated with raising rates higher. In the third back-to-back policy decision today, the Bank of England is also set to hold rates steady at 5.25%, narrowing the focus to guidance in the Monetary Policy Report.”

Sam Cornford – Head of Trading

Main Headlines

US President Joe Biden kicked off a two-week ‘barnstorming’ tour by the White House with 13 top administration officials visiting rural areas in 15 states, including key battleground states like Michigan, Pennsylvania, and Arizona. During a visit to a family farm in Minnesota, Biden expressed concerns about consolidation in meat processing and retail chains, which he believes has harmed American farmers. He also announced $5 billion in new investments aimed at benefiting rural Americans.

London’s FTSE 100 saw gains on Thursday, driven by a series of positive earnings reports from major companies like Sainsbury’s and Shell. Investors were also closely monitoring the Bank of England’s upcoming monetary policy decision. The internationally focused FTSE 100 advanced by 0.7% while the mid-cap FTSE 250 rose 1%, aiming for a five-session winning streak. Shell’s shares increased by 0.8% as the global energy company reported third-quarter profits in line with expectations and revealed a $3.5 billion share buyback program scheduled for the next three months.

GBP

Sterling is riding a small wave of broad dollar weakness this morning ahead of the Bank of England policy decision later today. The final manufacturing PMI further reinforced the downside risks to economic growth when it was revised downwards from 45.2 to 44.8, denting the pound slightly yesterday morning. The Bank of England rate decision is set to be a quiet affair, with markets pricing in a 90% chance of a policy hold this afternoon despite elevated inflation, amid a sluggish economy, loosening labour market, and the known lags in the effects of monetary tightening. Any price action will be generated from the Monetary Policy Report and the skew of member votes, where investors will be keen to parse each word and its implication for current economic conditions and future policy. Risks for the pound are broadly tilted to the downside here – poor economic data constrains Gov Bailey’s ability to maintain a tightening bias, and a hint towards terminal rates will be difficult to avoid.

EUR

The euro has seen a 0.7% rebound since its CPI-induced lows on Tuesday. The manufacturing sector is under the microscope this morning with a string of final PMI releases, although large revisions would not be expected. German unemployment change is the only other data point today, and so EUR-leg price action will likely be limited whilst investors focus on the consequences of the Federal Reserve and Bank of England decisions.

USD

The market’s dovish interpretation of the Fed’s second consecutive rate pause has weakened the dollar heading into today’s session. Mixed data released yesterday saw a disappointing ISM manufacturing PMI alongside another strong set of jobs opening data. It took Chair Powell to move the needle for the dollar index however, when he hinted towards a peak in monetary tightening following the announcement that the Federal Funds Rate would remain in the 5.25-5.50% range. The door was by no means closed for further rate hikes, but there was also clear acknowledgement that inflation is in a good place and that the risks are becoming increasingly balanced between under- and over-tightening. Markets immediately dialled back expectations of further hikes and priced in a 70% chance of a full rate cut by June, whilst the 10-year Treasury yield fell 20bps throughout the day.  The US data calendar now turns to jobless claims and factory orders this afternoon, before the big jobs report comes tomorrow.

Markets

Asian stocks and currencies experienced a rally, supported by a drop in US Treasury yields as investors assessed the Federal Reserve’s ongoing tightening measures. European share futures also advanced, and emerging-market currencies, led by the South Korean won, showed strength. US stock futures maintained their gains in this scenario.

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

9:50 a.m.: France Oct. Manufacturing PMI
9:55 a.m.: Germany Oct. Manufacturing PMI
10:00 a.m.: Norges Bank Rate Decision
10:00 a.m.: Euro-area Oct. Manufacturing PMI
10:30 a.m.: BOE Decision Maker Panel Survey
10:30 a.m.: Spain sells bonds
10:50 a.m.: France sells bonds
12:00 p.m.: ECB’s Lane speaks
1:00 p.m.: BOE Rate Decision
1:30 p.m.: BOE’s Bailey speaks
1:30 p.m.: US Initial Jobless Claims
2:30 p.m.: Czech National Bank Rate Decision
3:00 p.m.: US Sept. Factory Orders, Durable Goods Orders
6:00 p.m.: SNB’s Jordan speaks

Corporate Events

Earnings include Ferrari, Adani Enterprises, Tata Motors, Apple, Starbucks, Moderna, Eli Lilly, Peloton, Expedia, ConocoPhillips, Block, Coinbase

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