Morning Report

November 06, 2023

“A dovish Federal Reserve and a softened US jobs report sent the dollar tumbling towards the end of last week as markets rejoiced at the prospect of a peak in central bank interest rates. The data this week will test the resulting rally in riskier assets that saw the likes of sterling and the euro soar to six-week highs – UK GDP and central banker speeches in particular will be hotly anticipated.”

Sam Cornford – Head of Trading


Main Headlines

A new poll conducted by the New York Times and Siena College indicates that, a year before the US election, former President Donald Trump leads in five of the six most important battleground states. Trump is leading in Arizona, Georgia, Michigan, Nevada, and Pennsylvania, while President Joe Biden is ahead in Wisconsin. In the 2020 election, Biden won in all six of these states. On average, Trump currently leads with 48% to Biden’s 44% in these six states, according to the polls.

Research from Accenture indicates that nearly two-thirds of UK adults are planning to reduce their spending this Christmas. Concerns about the cost of living are leading Britons to cut back on spending for presents, dining out, and food and drink at home. These findings contrast with surveys published last month by Deloitte and PwC, which showed a more optimistic outlook, with around one-third of Britons planning to spend less this holiday season.


Sterling is trading near its highest level since September following a mega 2% rally late last week, driven primarily by the prospect of earlier US rate cuts. The final estimate of the services PMI was revised up on Friday to 49.5, in another sign of an emerging growth advantage versus a flailing eurozone economy. The final key purchasing manager survey is then due out today with the construction PMI, which is expected to improve slightly on last month’s figure but to remain firmly in contractionary territory. Bank of England chief economist Huw Pill also speaks this afternoon about the November Monetary Policy Report. Sterling investors will spend much of this week continuing to digest the implications of last week’s dollar-weakening events before gearing up for the GDP release on Friday, which is expected to show a -0.1% contraction in the third quarter and a stagnant economy in September.


The euro continues to gain ground this morning after it rapidly broke to the upside against the dollar last week, as it found some market direction following a range-bound October. Interestingly, however, the 10-year sovereign bond yield differential is still 25-35bps wider in the dollar’s favour than when EUR/USD was previously at this level. Add this to a sputtering eurozone economy and little hope coming from local data points, and it is hard to imagine that this rally will be sustained without some further support in this week’s data. Looking towards this data, we have a string of services PMIs this morning that are forecast to show a continuation of the stagflationary narrative. Expect also some hawkish rhetoric from ECB speakers that include Nagel and Lagarde this week, as they attempt to push back against derivatives markets that price rate cuts as early as April 2024.


The dollar is hovering above a six-week low this morning after a dovish Fed pause and a softened jobs report raised hopes of peak rates and earlier cuts, spurring on a rally in risk assets. The US economy added a lower-than-expected 150K jobs in October, and the unemployment rate ticked up to 3.9%, up 0.5% on its 3.4% low in May. Markets interpreted this as enough cooling in the labour market to prevent further rate increases, with futures markets now pricing in an 85% chance that the Federal Reserve has finished hiking, and an 80% chance that a first full 25bps cut takes place in June. The prospect of a peak in US borrowing costs sent ripples across global financial markets, with improving risk sentiment lifting global equities to their best weekly performance in a year, and a bond rally that saw the US 10-year Treasury yield plunge to 4.5%. The risk-sensitive AUD in particular has gained 3% in the past week, but a continuation of the dollar correction is likely to require a much sharper decline in the US yield advantage, given that the underpinnings of its recent strength still remain despite a denting. Today’s US data calendar is relatively sparse, but a speech from Chair Powell on Wednesday is set to generate some price action.


Global stocks generally advanced on Monday, continuing their gains from the previous week, with optimism that interest rates are nearing their peak. The MSCI’s Asian equity index increased for a fourth consecutive day, approaching its highest closing level since September. South Korea’s Kospi surged by as much as 4.4% after the announcement that short selling would be banned in the country until the end of June. Chinese technology and property firms also saw gains.

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

8:00 a.m.: Germany Sept. Factory Orders
9:35 a.m.: ECB’s Guindos speaks
9:50 a.m.: France Oct. HCOB Services/Composite PMI
9:55 a.m.: Germany Oct. HCOB Services/Composite PMI
10:00 a.m.: Euro-area Oct. HCOB Services/Composite PMI
10:30 a.m.: Euro-area Nov. Sentix Investor Confidence
10:30 a.m.: UK Oct. S&P Global/CIPS Construction PMI
1:45 p.m.: ECB’s Holzmann speaks
2:50 p.m.: France sells bills
5:00 p.m.: Fed’s Cook speaks
6:00 p.m.: BOE’s Pill speaks
7:00 p.m.: ECB’s Nagel speaks

Corporate Events

Earnings include BioNTech, NXP Semi, Ryanair


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