Morning Report

October 02, 2023

“Despite a short sterling and euro rebound, the dollar has notched its 11th straight weekly gain as it continues a remarkable streak that is unmatched in nine years. Volatility is expected with manufacturing PMI day today, with Spain, Italy, France, Germany, the UK, and the US all releasing economic activity data.”

Tim Hallinan – Trading Director


Main Headlines

The United States narrowly avoided its fourth partial government shutdown in a decade on Sunday. A last-minute move by Republican House Speaker Kevin McCarthy to collaborate with Democrats to pass a short-term funding bill shifted the potential risk of a government shutdown to mid-November. This means that the federal government can continue to function and its 4 million workers can expect to continue to receive their salaries for the time being.

In September, British house prices were 5.3% lower compared to the same month a year earlier, matching the decline recorded in August. This annual drop represents the most significant decline since 2009, as indicated by figures from mortgage lender Nationwide. On a month-on-month basis, house prices remained unchanged in September after experiencing a 0.8% decrease in August. The British housing market has experienced a slowdown, primarily due to rising borrowing costs. However, it’s worth noting that the decline in house prices is considerably less pronounced than the approximately 25% increase observed between the onset of the coronavirus pandemic and September of the previous year.


Sterling has handed back some of its gains from the tail-end of last week, as another relatively quiet UK data week begins today. A corrective shift in risk sentiment sparked a short comeback for the pound as the third quarter unwound and UK gilt yields edged up in the absence of UK-specific drivers, much of which has now been reversed. On today’s notable release, Sterling investors observed a virtually unchanged 44.3 on the final manufacturing PMI this morning, confirming the slight improvement on the previous contractionary figure that came with the preliminary release. The more significant services PMI revision will come on Wednesday, but before that, one of the more hawkish MPC members, Catherine Mann, is expected to talk later this afternoon.


The euro’s quarter-end corrective rally has also softened, but the common currency remains well clear of its lows versus the dollar from last Wednesday. The rebound has been attributed by many to quarter-end balance corrections, and any further strength would be undue and against the grain of consensus given the recent poor eurozone economic data. CPI inflation printed lower than expected last Friday but failed to significantly impact EUR/USD as global risk sentiment remained in the driving seat. Today, a string of manufacturing PMIs this morning printed generally higher than expected but a weaker German print dragged on the consolidated eurozone figure, which was unchanged on the provisional release at 43.4, showing a slight improvement on the previous month but remaining well in contractionary territory. The unemployment rate is also due this morning.


Despite some weakness in the second half, the dollar successfully notched its 11th straight weekly gain last week in its longest streak in nine years, buoyed again by stronger-than-expected consumer sentiment on Friday afternoon. Markets took a sigh of relief over the weekend as a successful last-ditch effort to prevent a US government shutdown reassured investors that the government would continue to function, and that economic data would be released on time this week. On that note, the ISM PMIs begin with the manufacturing release this afternoon, which is expected to tick up slightly despite continued stagnation. The Federal Reserve’s interest rate path will also be in focus today, with FOMC members Powell, Harker, and Barr all to speak, where downside risks are prevalent for the dollar if any loosen their hawkish stance.


US stock futures saw an increase, and Treasuries declined following a weekend agreement that averted a government shutdown in the United States. Futures on the S&P 500 surged by as much as 0.7% during early Asia trading after US lawmakers passed a compromise bill on Saturday to fund the government until November 17. In contrast, Asia’s stock benchmark erased earlier gains, and European equity futures experienced a slight decline. Several Asian markets, including China, are closed for holidays.

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

8:00 a.m.: UK Sept. Nationwide House Px
8:30 a.m.: Sweden Sept. PMI Manufacturing
9:30 a.m.: Switzerland Sept. PMI Manufacturing
9:30 a.m.: Riksbank Minutes from September Meeting
9:45 a.m.: Italy Sept. HCOB Italy Manufacturing PMI
9:50 a.m.: France Sept. HCOB Manufacturing PMI
9:55 a.m.: Germany Sept. HCOB Germany Manufacturing PMI
10:00 a.m.: ECB’s Centeno, de Cos speak
10:00 a.m.: Euro-area Sept. Manufacturing PMI
3:45 p.m.: US Sept. Manufacturing PMI
4:00 p.m.: US Sept. ISM Manufacturing
5:00 p.m.: Fed’s Powell and Harker speak
5:00 p.m.: BOE’s Catherine Mann speaks
7:30 p.m.: Fed’s Williams speaks
Markets closed in China, India, Hong Kong, South Korea


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