October 01, 2024

“There is a lot for markets to be keeping track of this week, with Chinese economic stimulus announcements, geopolitical conflict in Lebanon, falling eurozone inflation, and some key US jobs numbers that all need to be pieced together. Eurozone CPI and US JOLTS data are the headline events today.”

Tim Hallinan – Trading Director

USD

There are two main factors driving the dollar higher this morning. The first is some haven demand from the beginning of an Israeli ground offensive into Lebanon, something that caretaker Lebanese PM has referred to as the most dangerous phase in Lebanon’s history this morning. The second is Powell’s choice to pour cold water on 50bp easing bets last night, in a speech that was unusually specific about a 25bp cadence in the final two meetings of the year and only reaching its neutral rate ‘over time’. The basis for his pushback against stretched dovish pricing was that revisions to personal income and savings rates data have suggested more fuel left in the tank for consumers than perhaps they had previously thought, which has softened some of the downside risk that had prompted a 50bp move in September.

Today is packed with Fedspeak and macro data. Bostic, Cook, Barkin, and Collins all speak today, shortly after the JOLTS job openings and ISM manufacturing data this afternoon. Last month’s sharp fall in job openings is not expected to be repeated today, with the consensus looking for an unchanged 7.67M. The ISM print is expected to tick up slightly to 47.5, and as usual it will be the prices, employment, and new orders indexes that are closely watched for signs on the labour market, activity, and inflation.

GBP

Sterling is trading according to external developments this week. A hawkish US rates repricing and some risk aversion this morning have pushed GBP/USD to the downside, while softer-than-expected inflation data and some dovish admissions from the ECB President have lifted GBP/EUR back above 1.20. The BoE’s Greene spoke again yesterday with some predictably cautious rhetoric that questioned how quickly rates can move lower, referring to the risk that rebounding consumption could revive domestic inflation. The central bank’s Chief Economist, Huw Pill, takes to the podium this afternoon. He tends to skew towards the hawkish end of the spectrum, but he is not always fully consistent and has been a market mover.

EUR

The euro is under pressure as the dovish inflationary picture continues to come together for the eurozone. Germany’s 1.8% figure meant that the ECB racked up another sub-2% CPI print for September, and today’s bloc-wide figure is estimated to be 1.8% too. Core inflation is likewise expected to inch lower from 2.8% to 2.7%. Faced with a miserable growth outlook and below-target headline inflation, it is increasingly difficult to see where the ECB’s hawks are going to find the ammunition to argue for a pause come the October meeting. Lagarde admitted as much yesterday, saying that ‘the latest developments strengthen our confidence that inflation will return to target in a timely manner’ and acknowledging the weakening prospects for an economic recovery. Pricing for an October rate cut is now up to 90%.

Markets

After an erratic quarter-end that saw Chinese stocks rise 25% in the week following the first stimulus announcements, the second largest economy’s markets are now closed for Golden Week. Incidentally, Monday’s 8% surge was the best day seen since 2008. For this to stick, the monetary and fiscal measures now have to deliver the growth that investors are hoping for. Elsewhere, another marginal gain for the S&P 500 took its Q3 winnings to 5.5%.

Main Economic Events (All Times CET)

11:00am: Eurozone CPI
4:00pm: BoE’s Pill speaks
4:00pm: US ISM Manufacturing PMI
4:00pm: US JOLTS Job Openings

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