November 10, 2023

“The US Dollar outperformed its major rivals on Federal Reserve Chairman Jerome Powell’s hawkish remarks yesterday. Meanwhile, UK GDP figures failed to trigger a noticeable market reaction. Ahead of the weekend, the University of Michigan will release the preliminary Consumer Sentiment Index data for November which is expected to be broadly stable.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Federal Reserve Chair Jerome Powell voiced his optimism about the gradual slowdown of inflation during his recent remarks, delivered to an audience at the International Monetary Fund in Washington, D.C. However, he acknowledged uncertainty regarding whether their actions thus far have been sufficient to maintain this positive trend. Just over a week ago, the central bank decided to keep its benchmark policy rates steady. Powell hinted that further efforts may be necessary in the ongoing battle against surging prices. It’s important to note that inflation, although still well above the Fed’s longstanding target, has considerably eased compared to its peak levels in the first half of 2022.

Britain’s economy faced a significant hurdle in the form of no growth during the July-to-September period, as reported by the Office for National Statistics. September witnessed a modest 0.2% expansion, an improvement from the previously revised-down growth of 0.1% in August, initially reported as 0.2%. In this quarter, the services sector in the UK experienced a marginal 0.1% decline, while industrial production remained relatively stable, and construction grew by 0.1%. Despite the Bank of England’s projection of zero economic growth in the coming year, it opted to maintain its benchmark interest rates at a 15-year high as part of its ongoing efforts to combat an inflation rate more than three times its 2% target. The Bank of England expects the third-quarter growth to be stagnant.

GBP

Sterling is weaker than most major currencies in the early morning trade. Several UK economic indicators have surpassed expectations, but the British Pound is unlikely to find respite as market sentiment continues to lean towards expectations of Bank of England interest rate hikes in 2024. The third quarter’s UK GDP remained unchanged at 0% quarter-on-quarter, surpassing expectations of a -0.1% decline. This contributed to a 0.6% year-on-year growth in the third quarter, outperforming the market’s anticipated 0.5%. Notably, September exhibited a growth rate of 0.2% month-on-month, exceeding expectations of a flat outcome.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. The near-term prospects of the EUR are contingent on key speeches, with ECB President Christine Lagarde scheduled to participate. She will engage in a discussion with Martin Wolf at the Financial Times Global Boardroom. In a recent ECB Economic Bulletin, the emphasis was placed on the commitment to achieving the inflation target. The bulletin also highlighted the need for maintaining a restrictive policy for an extended period to address sustained high inflation. This trajectory of higher ECB interest rates is expected to raise borrowing costs and reduce disposable income.

USD

The dollar is well bid against most major currencies overnight. This morning, the US dollar was on track to record its strongest performance against the yen in three months, following comments from Federal Reserve Chair Jerome Powell and several Fed officials that tempered market expectations of a peak in US interest rates. A number of Fed policymakers, including Powell, expressed uncertainty about whether interest rates have been raised sufficiently to effectively combat inflation. These comments were interpreted as hawkish by the markets, resulting in a rise in the value of the greenback. These remarks came after the US central bank’s decision last week to leave interest rates unchanged, solidifying expectations that rates may have reached their peak and leading to a decline in the dollar’s value and Treasury yields.

Markets

European markets are poised for a decline today, following Jerome Powell’s statement that the Federal Reserve lacks confidence in its efforts to control inflation. In the Asia-Pacific region, stock prices dipped today, triggered by Powell’s comments and the subsequent increase in Treasury yields, which put an end to the eight-day winning streak of the S&P 500 in the US. Futures for US stocks indicated a slightly higher opening on Wall Street.

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

8:00 a.m.: UK 3Q GDP
8:00 a.m.: UK Sept. Manufacturing Production
8:00 a.m.: UK 3Q Exports, Visible Trade Balance, Industrial Production
8:00 a.m.: Sweden Sept. Household Consumption
8:00 a.m.: Norway Oct. CPI
8:00 a.m.: Turkey Sept. Unemployment Rate, Industrial Production
8:30 a.m.: Hungary Oct. CPI
1:30 p.m.: ECB’s Lagarde speaks
4:20 p.m.: ECB’s Nagel speaks
4:00 p.m.: US Nov. University of Michigan Sentiment
China Oct. New Lending, Money Supply as soon as today

Corporate Events

Earnings include Allianz, Richemont, Tokyo Electron, Shiseido, Cellnex

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.