November 08, 2023

“Markets continue to retrace the knee-jerk dollar slide initiated by softened jobs data and dovish language last week, as Federal Reserve speakers dominate the economic calendar with hawkish pushback on the decline in US Treasury yields. Chair Powell’s speech has investors’ attention today, where his policy clues will determine the near-term market direction.”

Sam Cornford – Head of Trading

Main Headlines

The Biden administration has put a pause on discussions related to certain crucial digital trade elements of its Indo-Pacific Economic Framework initiative, according to Democratic lawmakers. This move occurs as negotiators from 14 countries aim to finalise certain agreements before a major Pacific Rim summit scheduled for the following week. The suspension comes after the US Trade Representative’s office reversed longstanding US digital trade demands at the World Trade Organisation, no longer insisting on rules that safeguard free cross-border data flows and prohibit national requirements for data localisation and reviews of software source code.

The National Institute of Economic and Social Research has urged British Chancellor Jeremy Hunt to resist pre-election tax cuts and to boost investment in areas such as infrastructure and skills to revitalise the economy. According to the institute, the bottom 50% of earners in the country may not see their inflation-adjusted incomes return to pre-COVID levels until the end of 2026. The institute suggests increasing annual public investment to 3% of GDP and providing incentives for companies to invest more as a means to accelerate economic recovery.

GBP

Sterling has edged lower again this morning as the retracement of it stellar rally last week continues. In a relatively quiet few days for macro data ahead of GDP on Friday, the pound has drifted downwards against a recovering dollar. All eyes will be on Bank of England Governor Bailey’s speech this morning for clues on future policy direction, with growing confidence that rates have peaked turning attention to the pace and timing of rate cuts next year. 30bps of cuts are currently pencilled in for next August, below the equivalent for the US and eurozone.

EUR

The euro has handed back more than a third of the gains it made last week, when it was boosted by a dovish Fed tilt and a soft US jobs report. German final CPI this morning was confirmed to be 0.0% month-on-month in October, in a stark signal of waning eurozone inflation amid a contracting German economy. A sparse macro diary for the common currency today will steer EUR/USD traders’ attention to the raft of Federal Reserve speakers this afternoon, before turning to ECB President Lagarde tomorrow. Italian retail sales are the only remaining data point this morning, although some interesting remarks may emerge from today’s Eurogroup meetings of euro area finance ministers in Brussels.

USD

Chair Powell commentary is the primary focus for the dollar index today, as investors await his response to the weakening in financial conditions that ensued following his dovishly interpreted press conference last week. Several Federal Reserve speakers have pushed back against the knee-jerk weakening in US yields in the past couple of days, leading to corrective moves that have retraced the overshoot on euro and sterling strength last Friday. Bowman wants further rate hikes, citing the volatility of long-term rates; Kashkari would prefer to lean towards overtightening; and Logan warns inflation is trending towards 3% and not 2%. Powell’s policy clues will be the next to be interrogated when he speaks today and tomorrow, with his word naturally most significant for currency markets.

Markets

Stocks dipped slightly as investors eagerly awaited insights into the future of interest rates from various central bank officials, including Federal Reserve Chair Jerome Powell. Europe’s Stoxx 600 experienced a 0.2% decline, and US equity futures remained relatively stable. Meanwhile, the 10-year Treasury yields increased by three basis points, reaching 4.6%. West Texas Intermediate oil hovered around $77, near a three-year low. Marks & Spencer Group Plc saw a significant boost of 9.4% following a surge in profit and the reinstatement of a dividend.

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

8:00 a.m.: Germany Oct. CPI
8:30 a.m.: ECB’s Nagel speaks
9:00 a.m.: Norges Bank Deputy Governor speaks
9:00 a.m.: Norges Bank Financial Stability Report
9:40 a.m.: ECB’s Kazaks, Lane speak
10:00 a.m.: ECB’s Wunsch speaks
10:00 a.m.: ECB’s Makhlouf speaks
10:00 a.m.: ECB Sept. 1-year, 3-year CPI Expectations
10:30 a.m.: BOE’s Bailey speaks
11:00 a.m.: Euro-area Sept. Retail Sales
11:15 a.m.: Fed’s Cook speaks
12:00 p.m.: ECB’s Nagel speaks
1:00 p.m.: US MBA Mortgage Application
1:15 p.m.: Riksbank’s Bunge speaks
1:30 p.m.: ECB’s de Cos speaks
1:30 p.m.: ECB’s Vujcic speaks
3:15 p.m.: Fed’s Powell speaks
4:00 p.m.: US Sept. Wholesale Trade Sale
7:40 p.m.: Fed’s Williams speaks
8:00 p.m.: Fed’s Barr speaks
Bloomberg New Economy Forum in Singapore
Euro-area finance ministers meet in Brussels
Third Republican US presidential debate is held in Miami

Corporate Events

Earnings include Walt Disney, Airbus, Siemens, SoftBank, Adidas.

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