November 22, 2023

“The dollar’s three-week slide has finally tapered off this morning as the initial peak-rate euphoria wears off. During the brief lull, markets will look to tomorrow morning’s eurozone and UK PMIs for the next clues on market direction.”

Sam Cornford – Head of Trading

Main Headlines

German Chancellor Olaf Scholz and Italian Prime Minister Giorgia Meloni are expected to enhance cooperation on various issues, including energy and defence, at an intergovernmental summit in Berlin on Wednesday—the first such summit in seven years. The leaders of the eurozone’s largest and third-largest economies have recently aligned on several issues, such as the construction of a pipeline for gas and hydrogen transport and approaches to address illegal migration. Scholz and Meloni are set to sign a 31-page action plan, committing to increased regular dialogue and close coordination on key policies.

British Chancellor Jeremy Hunt is expected to announce tax cuts for businesses, and potentially for voters, in an effort to boost the country’s sluggish economy and support his party before an anticipated election next year. A decline in inflation has given momentum to Hunt’s plans, and he aims to use his Autumn Statement budget update speech in parliament to redirect the government’s attention toward addressing the persistent issue of weak economic growth in the world’s sixth-largest economy. The announcement is rumoured to include a permanent tax break for businesses, allowing them to immediately offset investment in plant and machinery against tax.

GBP

Sterling has steadied near its highest level since early September this morning as its November rally takes a breather. Yesterday’s Monetary Policy Report hearings failed to throw up any surprises, when prominent central bankers continued hawkish pushback and reiterated that there is still a long way to go in bringing down inflation, and that financial markets are considerably more optimistic than the Bank of England in this respect. The Autumn budget update takes centre stage today on the UK calendar ahead of tomorrow’s PMIs – tax cuts or policies beneficial to growth would likely please markets here.

EUR

The euro dipped overnight against both the dollar and sterling but remains at a two-month high. ECB President Lagarde struck a somewhat hawkish tone yesterday afternoon when she maintained that it is too early to declare victory over inflation and that the recent short-term softening in the data is insufficient to rush to conclusions about incoming rate cuts. Eurozone consumer confidence is due to remain pessimistic but relatively stable when it prints this afternoon, but market attention will be firmly on tomorrow morning’s PMI data, which economists expect to illustrate a small deceleration in the contraction of private sector economic activity after a string of disappointments since the summer.

USD

The dollar’s November slide has stabilised this morning as the dovish cheer that has fuelled capital outflows tails off. The recent selling pressure, driven by the softening data and positioning changes, have seemingly been exhausted at the current price levels. The FOMC meeting minutes yesterday evening failed to add fuel to the dollar selloff, given that the unanimous caution surrounding the risks of overtightening for economic activity was already priced in to market expectations. Fed officials essentially ruled out further hikes in the absence of a reacceleration in US inflation. Dollar weakness is likely to be capped around current levels therefore in the near-term, barring any upside surprises in the eurozone or UK data. Existing home sales also fell to their lowest level in 13 years as high mortgage rates make homeowners unwilling to exit low-rate mortgage deals. Today’s diary brings a package of macro data ahead of likely low volatility in tomorrow’s Thanksgiving holiday, with jobless claims, durable goods orders, and consumer sentiment all due for release this afternoon.

Markets

Stocks experienced a decline this morning as a measure of Asian equities fell, particularly in artificial intelligence stocks, following a lukewarm investor response to Nvidia Corp.’s earnings. Futures for European and US stocks showed minimal changes, as trading activity slowed down in anticipation of a holiday in Japan and US Thanksgiving on Thursday.

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

9:00 a.m.: South Africa Oct. CPI
12:00 p.m.: ECB’s Centeno speaks
1:00 p.m.: EU sells bills
1:30 p.m.: UK Chancellor presents Autumn Statement
2:30 p.m.: US Oct. Durable Goods Orders; Jobless Claims
4:00 p.m.: Euro-Area Nov. Consumer Confidence
4:00 p.m.: US Nov. UMich Sentiment
5:00 p.m.: ECB’s Nagel speaks
Netherlands parliamentary election
Germany’s Olaf Scholz and Italy’s Giorgia Meloni hold joint cabinet meeting

Corporate Events

Earnings include Sage, Petronas, Deere & Co

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