Morning Report

October 06, 2023

“Markets have calmed this morning, as plummeting oil prices and the incoming US non-farm payrolls report ensure a lull in the bond market selloffs that we have observed recently. The Federal Reserve will hope for a significant cooling in the US labour market, and investors will look to revise interest rate expectations if we see a surprise.”

Tim Hallinan – Trading Director


Main Headlines

US gasoline prices are currently on a downward trend and may reach $3 a gallon in many areas in the coming weeks. This decline is attributed to a decrease in crude oil futures prices, which have fallen by $10 a barrel due to economic concerns and reduced demand. While lower gasoline prices could benefit consumers and help alleviate inflationary pressures, it may also signal economic weakness. Government data in the US has indicated that the four-week average of gasoline demand is at its lowest seasonal level in 26 years. Prior to this recent drop, gasoline prices had experienced a 7.4% increase in the third quarter, driven by rising crude oil futures prices following production cuts by Saudi Arabia, Russia, and other OPEC+ members.

According to data from mortgage lender Halifax, British house prices have experienced the sharpest decline since 2009 over the 12 months leading up to September. Halifax reported that house prices were 4.7% lower in September 2023 compared to September 2022, marking a more significant annual drop than the 4.5% decline observed in August. On a monthly basis, prices fell by 0.4% in September, which is a less severe decline compared to August’s 1.8% decrease.


Sterling has steadied this morning after some intraday volatility yesterday. Construction activity in the UK slipped into decline and printed well below forecast, which represented the biggest slump since 2020, according to a PMI survey. The Bank of England Decision Maker Panel Survey also showed that inflation expectations fell, and firms finding recruitment ‘much harder’ stood at 20%, versus a 65% peak in mid-2022. The UK macroeconomic calendar is complete for this week as a relative scarcity of market-moving data continues – investors will be keen to see the drought ease with the key GDP print next week. For now, all eyes are on the US payrolls report this afternoon.


The euro remains firm against the dollar as market calm precedes key US labour market data later today. With the pause in the bond selloff continuing this morning, the stall in dollar-induced weakness sees the euro trading in a relatively stable range. In an unusual bright spot for the eurozone economic outlook this morning, German factory orders rose 3.9% in August after a -11.3% fall in the previous month. Italian retail sales is the final relevant data point for the week, which is expected to be stagnant.


The dollar is trading comfortably below its recent highs, where it is set to hit a 12-week winning streak in what has been an almost unwavering three-month rally. In yesterday’s data release, unemployment claims rose 207,000, which was broadly in line with expectations. Markets will be hesitant to place directional bets this morning and are likely to sit on their hands, instead awaiting a crucial set of US labour market data this afternoon, which includes non-farm employment change, the unemployment rate, and average hourly earnings. A labour market that remains tight will give further credence to the Fed’s ‘higher-for-longer’ narrative, and possibly kickstart a renewed rally in Treasury yields that would send the dollar even higher. If the data relents, however, the potential fragility of sky-high yields may spark a significant amount of dollar weakness. Economists forecast a slight slowing in hiring and, if the ADP report on Wednesday is anything to go by, significant volatility can be expected from a surprise print.


European equity futures and Asian shares have seen gains ahead of the release of the monthly US payrolls report. The S&P 500 remains down 8% from its 2023 highs as high bond yields reduce investor appetite for risk assets. Contracts for the Euro Stoxx 50 have risen by approximately 0.2%, while a gauge of Asian shares is on track for its second consecutive daily gain. This would mark the first back-to-back increase in three weeks, with major indexes across the region experiencing gains. Oil prices have flipped from soaring to plunging, standing 13.5% cheaper than last week’s 11-month high. Notably, Chinese markets are closed for a weeklong holiday.

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

7:45 a.m.: Switzerland Sept. Unemployment
8:00 a.m.: Germany Aug. Factory Orders
8:00 a.m.: Norway Aug. Industrial Production
8:30 a.m.: Hungary Aug. Industrial Production
8:45 a.m.: France Aug. Trade Balance
9:00 a.m.: Switzerland Sept. Foreign Currency Reserves
10:00 a.m.: Italy Aug. Retail Sales
10:00 a.m.: Bank of Finland in Parliament Hearing
2:30 p.m.: ECB’s Knot, Vasle, Vujcic, Kazimir speak
2:30 p.m.: US Non-Farm Payrolls, Unemployment Rate


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