November 28, 2023

“The dollar’s bearish momentum has stalled somewhat this morning after a contracting property sector weakened it again yesterday, but markets are geared up for some volatile swings out of eurozone and US inflation data in the second half of the week.”

Sam Cornford – Head of Trading

Main Headlines

Fashion company Shein has confidentially filed for an initial public offering (IPO) in the United States, making it one of the potentially most valuable China-founded companies to list in New York. Goldman Sachs, JPMorgan Chase, and Morgan Stanley have been appointed as lead underwriters for the IPO, and Shein may launch its share sale sometime in 2024. This move to go public in the US comes at a time when the IPO market is facing challenges in recovering, with several lacklustre stock market debuts.

Shoppers at British store chains have experienced the slowest increase in prices in almost a year and a half, according to the British Retail Consortium. The annual shop price inflation dropped to 4.3% in the 12 months to November, marking its weakest level since June 2022 and a slowdown from October’s 5.2% rise. This marks the sixth consecutive month in which the pace of price growth has weakened.

GBP

Sterling has steadied as its November rally briefly stalls this morning. According to a Confederation of British Industry report released yesterday, the fall in consumer spending decelerated this month as sales volumes fell much more slowly than expected, mirroring the improving economic data from last week. The BoE’s Ramsden said early this morning in Hong Kong that tightened monetary policy will likely need to remain restrictive for an extended period, leading a chorus of central bankers at a panel speech. Today’s data calendar is relatively sparse, so investor focus will move towards mortgages and lending data tomorrow morning.

EUR

The euro has weakened slightly against the pound and dollar this morning ahead of the key CPI prints tomorrow. ECB President Lagarde reiterated that the fight against eurozone inflation still has far to go amid an uncertain outlook, but also acknowledged that price pressures have eased considerably. She also fuelled hopes that the ECB will begin to wind down its balance sheet and accelerate quantitative tightening, which may support the euro going forwards. Growth in private loans is expected to have slowed year-on-year in October to 0.7% this morning as tightened financial conditions weigh on credit. The German and Spanish flash CPI prints tomorrow morning are the crucial market movers for the euro this week, where the euro’s path higher will be tested as investors revise expectations for future monetary policy.

USD

The dollar index dipped to a three-month low this morning after US Treasury yields fell on weak housing data. The narrative of slowing growth and peak rates continues to depress the greenback and was validated further yesterday when new home sales fell 5.6% in October compared to the previous month, as high mortgage rates squeeze affordability. The 10-year Treasury yield also fell another 10bps to a trough of 4.375% this morning, down from above 5% in October, boosting portfolio capital flows out of the dollar. The key events ahead today are the CB consumer confidence index, the S&P house price index, and a raft of Fed speakers later this afternoon. Core PCE inflation on Thursday is the main data point being talked about now in the FX markets, however, which is set to be a blockbuster release when it tests the current narratives.

Markets

In November, Treasuries continued their strong performance as traders assessed mixed US government debt sales amidst speculation that the Federal Reserve has concluded its interest-rate hikes. The auction of five-year bonds, amounting to $55 billion, witnessed robust demand, following a less successful sale of two-year notes totalling $54 billion. As a result, benchmark 10-year yields fell to around 4.4%. In terms of market performance, industrial and financial shares underperformed, while retailers experienced a modest advance with the start of Cyber Monday.

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

8:00 a.m.: Denmark Oct. Retail Sales
8:45 a.m.: France Nov. Consumer Confidence
9:00 a.m.: ECB’s Nagel speaks
10:00 a.m.: Austria Nov. Manufacturing PMI
10:00 a.m.: Euro-area Oct. Money Supply
4:30 p.m.: Riksbank’s Floden speaks on forecasts, e-krona
5:00 p.m.: ECB’s Lagarde speaks (pre-recorded)
6:00 p.m.: BOE’s Haskel speaks
Meeting of NATO foreign ministers in Brussels

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