Morning Report

October 12, 2023

“A partial recovery in the sluggish UK economy has kept the pound buoyant this morning, as we await a decisive test of the current market direction this afternoon in the form of US CPI inflation. Strong disinflation will cement the market’s view that tightening has peaked, whilst an upside surprise could put a November hike back on the table.”

Tim Hallinan – Trading Director


Main Headlines

In the United States, the United Auto Workers (UAW) escalated its targeted strike against the Detroit Three automakers by abruptly shutting down Ford’s largest global plant, halting the production of lucrative pickup trucks. The UAW cited Ford’s refusal to make further progress in contract negotiations as the reason for the strike, and this unexpected development could potentially impact Ford’s full-year profits significantly.

In August, Britain’s economy saw a partial recovery following a significant decline in July. However, the overall picture still reflects sluggish growth in the aftermath of last year’s surge in inflation and 14 consecutive interest rate hikes by the Bank of England. Official data revealed that economic output increased by 0.2% in August compared to July, aligning with the median forecast in a Reuters poll of economists. It’s worth noting that the drop in July, attributed to rainy weather and strikes, was revised to a larger decline of 0.6% from the initial estimate of 0.5%.


Sterling is hovering around a three-week high as it continues a firm trading week against both the euro and the dollar. The recovering GDP print this morning had a muted market reaction overall, despite many of the underlying figures missing expectations – construction output, industrial production, and manufacturing production all contracted around 0.5% more than expected. BoE policymaker Dhingra said yesterday that the UK economy has flatlined already, despite only 20-25% of the impact of rate hikes feeding through. Markets are acutely aware of the impact this may have on monetary tightening and there has been some spillover from the Federal Reserve’s dovish pivot, with another hike this year priced in at below a 50% chance in the derivatives markets. On today’s calendar, the BoE Credit Conditions Survey will provide insight into the lending market during Q3, and Chief Economist Huw Pill is set to speak at an IMF conference panel.


The euro will finally get a chance to tell its own story today, after moving at the mercy of dollar-driven events throughout the week. The ECB’s monetary policy meeting minutes are released this afternoon, and each line will be scoured by investors to investigate the thought process behind the Governing Council’s rate decisions. It is unlikely to be a significant market-mover barring any huge surprises, however, as markets already expect a near-zero chance of any further hikes, and few concrete hints will likely be given as to when rate cuts might come into the picture. In other news, euro area households upgraded their three-year expectations for inflation from 2.4% to 2.5%.


Buoyant risk sentiment and a dovish Fed narrative weighed the dollar down to a two-week low as markets shrugged off an upside surprise in PPI inflation. The month-on-month figure printed at 0.5%, up on the expected 0.3% but moderating from August’s 0.7% number. The underlying figure, stripped of food, energy, and trade services, gained 0.2% in September, matching August’s print. The still-low core measure meant that the release failed to outweigh dollar declines in response to numerous Fed officials predicting an end to rate hikes. The Federal Reserve also released its minutes from the September meeting, where members universally agreed that policy would remain restrictive for a significant duration but emphasised the uncertainties surrounding the trajectory of the US economy. CPI inflation this afternoon will be the critical test to the dollar’s short-term decline, where economists expect the disinflation trend to continue after August’s energy-driven blip.


Global markets showed signs of optimism as shares advanced in anticipation of the CPI report. An encouraging move by China’s sovereign wealth fund, which involved purchasing shares of the country’s largest banks, further fuelled positive sentiment. In Europe, the Stoxx 600 Index rose by 0.5%, reaching a three-week high. US equity futures also climbed higher, following the S&P 500’s four-day winning streak, marking its longest such streak since August. Meanwhile, MSCI’s Asian equity index was set to achieve a sixth consecutive day of gains, with stock benchmarks in the region trading positively.

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

9:40 a.m.: ECB’s Elderson speaks
10:30 a.m.: ECB’s Villeroy speaks
11:00 a.m.: ECB’s Holzmann speaks
11:00 a.m.: Italy to sell bonds
12:00 p.m.: ECB’s Knot speaks
12:50 p.m.: ECB’s Vujcic, Vasle speak
1:00 p.m.: ECB’s Panetta speaks
1:30 p.m.: ECB Publishes Account of September Meeting
2:30 p.m.: US Initial Jobless Claims
2:30 p.m.: US Sept. CPI
3:00 p.m.: Russia Aug. Trade Balance
3:00 p.m.: Russia Forex Reserves

Corporate Events

Earnings include: Fast Retailing, Seven & i, Shift, Takeuchi, Fastenal, Domino’s Pizza, Chr Hansen, Suedzucker, Atrium Ljungberg


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