Morning Report

November 14, 2023

“Sterling has bounced this morning as the still-tight UK labour market remains a stubborn inflationary pressure. Investor focus will quickly turn to this afternoon’s CPI inflation from the US, where a moderate deceleration is expected to confirm that the Federal Reserve is done hiking rates.”

Sam Cornford – Head of Trading


Main Headlines

US house speaker Mike Johnson’s strategy to avert a partial government shutdown gained tentative backing from top Senate Democrat Chuck Schumer on Monday. Despite some resistance from Johnson’s hardline Republican colleagues, Schumer, whose support is crucial for passing the measure and preventing a government shutdown starting Saturday, expressed satisfaction that the proposal did not entail significant spending cuts. The bill must first navigate the House, where at least seven of Johnson’s fellow Republicans have indicated opposition to his two-step continuing resolution, maintaining current funding levels for federal agencies.

In an unexpected turn, ex-Prime Minister David Cameron made a return to the UK cabinet yesterday as the new foreign secretary. This move, orchestrated by British Prime Minister Rishi Sunak, is aimed at assuring hesitant supporters that the Conservatives are not shifting towards the right ahead of the anticipated election next year. Sunak, in addition to dismissing Home Secretary Suella Braverman for publishing an unauthorised article criticising police handling of protests, has employed a broader reshuffle strategy that includes bringing back Cameron, a former pro-Remain campaigner in the 2016 EU membership referendum.


Sterling has edged higher this morning, propelled by hot labour market data and a cabinet reshuffle. Sunak’s decision yesterday to sack home secretary Suella Braverman and to bring in former PM David Cameron as foreign secretary gave the pound a small, tentative boost against the dollar and euro. This morning, however, it is stubbornly high wage growth that is propelling sterling, printing a notch lower than last month’s 8.2% at 7.9%, but still remaining well above desired levels and the 7.4% estimate. Concerns about data quality aside, given the general belief from policymakers that wage growth is less steep than suggested by this index, it is clear that the labour market is still tight and that this remains a persistent inflationary pressure. Meanwhile, employment rose by 54,000 and the unemployment rate remains unchanged at 4.2%. The next directional impulse for sterling will come early tomorrow morning with the October CPI release and its implication for December’s BoE meeting, which is expected to fall sharply from 6.7% to 4.7%.


The euro has strengthened slightly against the dollar this morning, dragged up to some degree with the sterling data. Data this morning includes the second reading of Q3 GDP growth and employment change, and the ZEW economic sentiment survey, for which a moderate rebound in investor sentiment is expected. In a Reuters poll, analysts contended that the ECB will hold rates at current levels well into next year and cut for the first time in July, despite expectations of a eurozone recession and financial market pricing that pencils the first cut in for April.


US CPI inflation dominates the FX market headlines this morning for an easing dollar, as investors await confirmation – or not – that Federal Reserve policy interest rates have peaked. CPI inflation is naturally a significant determinant of the data-dependent Fed’s policy direction, and the print this afternoon will weigh heavily on pricing for the December and January meetings. Headline CPI is expected to grow 3.3% year-on-year in October versus 3.7% in September, whilst the core measure – excluding volatile components such as food and energy – is forecast to stall at a sticky 4.1%, muting the impact of the dollar-negative headline. Meanwhile, USD/JPY remains a closely watched pair as the yen nears a fresh three-decade low and traders wait nervously for a possible intervention threat from the Japanese governing officials.


Asian stocks trimmed gains, particularly in the tech sector, amid concerns about a slowdown in China’s economy. However, overall, regional equities were still higher on the anticipation that a forthcoming report would reveal a deceleration in US inflation. MSCI’s regional share gauge rose by 0.3%, having reached a peak of 0.7%. China is set to release various economic data, including retail sales, industrial production, and fixed-asset investment on Wednesday. Additionally, Tencent Holdings Ltd. is expected to report earnings on Wednesday, followed by Alibaba Group Holdings Ltd. on Thursday. European and US stock futures showed minimal change.

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

8:00 a.m.: UK claimant count change and average earnings index
8:30am.: Switzerland PPI
11:00am.: Eurozone flash GDP and ZEW economic sentiment
12:00pm.: US NFIB small business index
2:30pm.: US CPI inflation
2:45pm.: BoE’s Pill speaks
4:00pm.: Fed’s Barr speaks

Corporate Events

Earnings include Home Depot, Foxconn, Vodafone, Toshiba.


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