Morning Report

October 05, 2023

“Sterling has gained some breathing room this morning against a relentless slide, as an upwards revision to services activity in September, combined with a reprieve in the US bond selloff, has buoyed the pound above its six-month lows. A gauntlet of US labour market data in the latter half of the week is set to find further direction for the dollar and test its resolve.”

Sam Cornford – Head of Trading


Main Headlines

US President Joe Biden has announced the approval of an additional $9 billion in student debt relief for 125,000 borrowers. This move comes after the Supreme Court blocked his plan to cancel hundreds of billions of dollars in student debt. President Biden has expressed his commitment to pursuing new measures to provide student loan relief to Americans. With this latest announcement, the administration has now approved a total of $127 billion in debt cancellation for nearly 3.6 million Americans.

In the UK, British Prime Minister Rishi Sunak has announced the cancellation of the northern leg of the HS2 high-speed rail project. Instead, he pledged to invest billions of pounds in local rail and road links, citing their suitability for a post-pandemic world. This decision to halve Britain’s largest infrastructure project has garnered criticism from business groups and trade unions. They have expressed concerns that it will negatively impact the country’s productivity, lead to job losses, and result in more lorries on the roads.


Sterling strengthened yesterday when the final revisions to September’s services PMI improved on the flash figure. Whilst still in slight contraction and the weakest for eight months, the 49.3 figure was less worrying in terms of recession risk than the 47.2 print a couple of weeks ago. Interestingly, 50% of surveyed businesses predicted an increase in activity levels over the next 12 months, compared to only 14% anticipating a decline. The construction PMI is due this morning, after which Deputy BoE Governor Broadbent is due to speak at a panel event.


The euro has consolidated its position in the early morning trade, as it enjoys a short reprieve from a US bond selloff that has eroded demand for the common currency. The data failed to significantly alter the euro area economic outlook yesterday – whilst the final services PMI was revised slightly upwards, retail sales fell a worse-than-expected 1.2%. In terms of today’s macro diary, French industrial production fell slightly less than forecast this morning, and the ECB’s Nagel is due to speak this afternoon. With eurozone data unlikely to reverse the euro’s fortunes, it will be the key US labour market data that will determine if a move closer to parity is due.


The dollar has handed back some gains as US Treasury yields have edged below their peaks in response to a 5% plunge in oil prices and soft ADP jobs data released yesterday. The poor predictive capacity of the ADP Non-Farm Employment Change report with regards to the official figure on Friday means that it should be taken with a grain of salt – ING’s analysts even suggest a negative correlation – but the 89k print fell well below expectations of 154k and sparked a downside market reaction. Meanwhile, the ISM services PMI came in very close to forecasts, signalling an expansion greater than that suggested by the S&P survey. Unemployment claims will be the main focus of the day, as well as Fed speaker Barr. Traders may look to be cautious, however, as they await the crucial non-farm payrolls report tomorrow.


European shares crept higher following three straight loss-making days, after softer US economic data sparked a late bounce on Wall Street and soothed fears of a Federal Reserve interest rate hike next month. Gains were fragile however, with Europe’s Stoxx 600 index edging just 0.1% higher after closing at the lowest in more than six months on Wednesday, while futures for the US S&P 500 were back to trading in the red, a day after the underlying benchmark posted its biggest gain in almost three weeks. The yield on benchmark 10-year Treasury bonds stood around 4.73%, slightly higher on the day, though it remains well off 16-year highs hit this week.

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

8:00 a.m.: Germany Aug. Exports
8:45 a.m.: France Aug. Industrial Production
9:00 a.m.: Spain Aug. Industrial Production
9:30 a.m.: Germany Sept. HCOB Construction PMI
10:00 a.m.: UK Sept. New Car Registrations
10:00 a.m.: ECB’s Kazimir speaks
10:30 a.m.: UK Sept. S&P Global/CIPS UK Construction
10:30 a.m.: BOE releases decision maker panel survey
11:45 a.m.: BOE’s Broadbent, Riksbank’s Breman, ECB’s Lane on Panel
2:30 p.m.: US Aug. Trade Balance; Weekly Initial Jobless Claims
3:00 p.m.: ECB’s Nagel speaks
3:45 p.m.: ECB’s Guindos Chairs Conference Session
4:30 p.m.: ECB’s Villeroy speaks in Paris
5:00 p.m.: ECB’s Nagel Speaks


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