October 09, 2023

“Last week’s payrolls report sent shockwaves through markets, with the US economy adding a more-than-expected 336k jobs in September as wage growth slowed. This week, investors will gear up for crucial US inflation prints and UK GDP.”

Sam Cornford – Head of Trading

Main Headlines

The Republican Party in the US House of Representatives is facing increased pressure to select a new speaker, after Israel declared war on Sunday following a rare attack by Hamas militants. Some Republicans, including Representative Jim Jordan, a leading candidate for the speaker role, also want lawmakers to reach an agreement on the thorny issue of federal spending for the current year when choosing a new speaker. House Republicans are scheduled to meet behind closed doors on Tuesday to hear from speaker candidates and will vote to choose their nominee on Wednesday. A House floor vote to elect a replacement for former Republican Speaker Kevin McCarthy could occur later in the week.

The UK’s opposition Labour Party is set to make a promise on Monday to stimulate economic growth by facilitating the construction of new infrastructure if elected to government. The initiative will be outlined in a speech by Rachel Reeves, the Shadow Chancellor, at the party’s annual conference in Liverpool. The Labour Party is seeking to bolster growth as part of its strategy to improve the funding of the UK’s struggling public services. To highlight this commitment, senior business leaders, including executives from companies like Octopus Energy and Microsoft, are expected to attend Labour’s ‘business day’ event.

GBP

Sterling has slid in the Asian session this morning as geopolitical uncertainty sees capital flows to safe-haven currencies like the dollar and yen. While markets digest last week’s payrolls report and other market developments, volatile intraday trading can be expected today across the FX markets, despite a relative absence of macroeconomic data for the pound. Markets have only a speech from resident BoE hawk Catherine Mann today. For domestic volatility triggers for sterling, investors are gearing up for Thursday’s GDP print as the crucial data point for this week. Economists forecast a 0.2% gain month-on-month in August, after strikes weighed on output in a wet July.

EUR

The euro slumped in the early morning trade, becoming one of the hardest hit by the impacts of haven flows and oil price rises. The common currency sold off against the yen, franc, dollar, and even sterling, with a particularly intense move catalysed by the euro area’s big exposure to energy costs as oil supply worries sent brent crude surging. ECB policymaker Knot commented that Italy is paying the price for its planned fiscal deficit through high borrowing costs, as the spread between German and Italian yields on sovereign debt expanded further last week. German industrial production contracted by -0.2% in August, slightly improving on a -0.6% read in the previous month, providing little comfort to euro investors. The Sentix Investor Confidence this morning is the last macro release for today and forecast to show worsening pessimism.

USD

Safe-haven flows see the dollar well bid today. A blowout payrolls report on Friday indicated that 336k jobs were added to the US economy in September – this was twice the expected figure and significantly higher than the 267k average from the past 12 months. The numbers sow doubt over the Fed’s view that the labour market has been rebalancing for the past few months, and bolsters expectations that US interest rates must remain higher for longer to stem inflationary pressures. Surprisingly, however, the greenback failed to hold on to its initial gains, as average hourly earnings growth slowed and unemployment ticked up to 3.8%. Today’s macro diary includes three Fed speakers throughout the afternoon.

Markets

Oil prices surged over 5% in response to Hamas’s surprise attack on Israel, which raised concerns about a broader conflict that could disrupt oil supplies. West Texas Intermediate (WTI) crude oil prices exceeded $87 per barrel, while Brent crude touched $89 per barrel. These price increases reflect the market’s anticipation of a potential escalation that could lead to a supply shock. In addition to the oil market’s reaction, investors sought safety in gold, bonds, and the U.S. dollar amid geopolitical uncertainties. Corporate earnings season is set to kick off this week, with 12 S&P 500 companies reporting, including JP Morgan, Citigroup, and Wells Fargo.

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

10:00 a.m.: ECB’s Guindos speaks
10:15 a.m.: ECB’s Centeno and Brazil’s Campos Neto speak
10:30 a.m.: Euro-area Oct. Sentix Investor Confidence
11:30 a.m.: Germany sells bills
2:00 p.m.: ECB’s De Cos speaks
2:50 p.m.: France sells bills
3:00 p.m.: Fed’s Logan speaks
3:15 p.m.: Fed’s Barr speaks
7:30 p.m.: Fed’s Jefferson speaks
World Bank-IMF annual meetings open in Marrakech, Morocco, through Sunday
LME Week in London, through Wednesday
US bond market closed

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