Morning Report

October 16, 2023

“FX market volatility ramped up last week as inflation data and geopolitical nerves sparked large intra-day swings. This week, UK CPI, US Federal Reserve speeches, and the risk of escalating conflict will give investors plenty more impetus for market movements.”

Tim Hallinan – Trading Director


Main Headlines

White House national security adviser Jake Sullivan has stated that the Biden administration aims to secure approval for a new weapons package for Israel and Ukraine through Congress. This proposed package is expected to surpass the previously mentioned amount of $2 billion. President Joe Biden will engage in discussions with Congress in the coming week to emphasise the impact of approving this package.

Asking prices for homes in Britain experienced the slowest pace of increase for this time of year since 2008, as reported by property website Rightmove. Average asking prices for homes rose by 0.5% between September 10 and October 7 compared to the previous four weeks, significantly below the usual increase of 1.4% for the same period. Prices were 0.8% lower year-on-year, and the number of agreed sales dropped by 17% in annual terms. These trends suggest that rising borrowing costs have been impacting the housing market.


Sterling has strengthened slightly this morning as it recovers from a miserable two days triggered by hot US inflation and fragile risk sentiment late last week. In data released on Friday, the number of companies declared insolvent in England and Wales was 17% higher last month than a year before, indicating that high borrowing costs are translating into significant impacts on the real economy. This week, near-term sterling price direction will be dictated by labour data tomorrow morning which includes unemployment claimant change and wage growth data, followed by the critical CPI print on Wednesday. This release will be the last consumer price growth figure received before the Bank of England rate decision at the beginning of November, for which the tail risk of a further hike remains, particularly if we get an unexpectedly high print. Today, investors have only a speech by the BoE’s Huw Pill to chew on, although markets will be closely watching developments in the Middle East.


The euro is hovering above a 1 ½-week low as it begins its final full week of data before the next ECB rate decision next week. President Christine Lagarde remarked at the weekend that the eurozone labour market is refusing to weaken despite near-recessionary conditions on the continent, something which also appears to be puzzling policymakers in the UK. Inflation is evidently on a downwards trajectory but underlying inflationary dynamics persist in the labour market, giving credence to policymaker comments that the ‘last mile’ of disinflation is likely to be bumpy and long-winded. This week, trade balance data is released today, whilst ZEW economic sentiment data on Tuesday and final revisions to CPI on Wednesday are likely to be the most significant euro-specific developments. Jittery oil markets are also set to be a key influence as investors observe potential Iranian involvement in Israel, with elevated oil prices beginning to exert negative terms-of-trade impacts on importer countries.


The dollar remains well bid despite some easing this morning, supported by hot inflation data and a haven bid spurred on by geopolitical jitters in the Middle East. Dollar strengthening mirrored similar gains in traditional safe haven assets like gold and the Swiss franc on Friday, brushing aside a significant softening in consumer sentiment data. A raft of Federal Reserve speakers will keep markets busy this week, beginning with Patrick Harker this afternoon and peaking with Chair Powell on Friday. After the major market response to a more dovish narrative provided last week, markets will be keen for further opportunities to scrutinise the likelihood of further hikes this year, especially after a hotter-than-expected inflation figure last week. In terms of macro data, the NY manufacturing index is due to show a tilt towards worsening conditions in the Empire State this afternoon, with softening retail sales and stable unemployment claims expected in the coming days.


Global financial markets displayed mixed and cautious movements as they responded to various geopolitical developments and economic data. In Europe, stocks experienced fluctuations, and in the US, equity futures showed a slight uptick. Investors remained attentive to international efforts aimed at de-escalating the Israel-Hamas conflict. Additionally, mining stocks performed well in Europe, while oil shares gained support from the recent surge in crude prices associated with geopolitical tensions in the Middle East. In Poland, pro-European opposition parties were expected to make gains, leading to a notable surge in stocks and a stronger zloty.

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

9:00 a.m.: Turkey Sept. Budget Balance
10:00 a.m.: Italy Sept. CPI
10:30 a.m.: Italy Aug. Government Debt
10:30 a.m.: BOE’s Huw Pill speaks
11:00 a.m.: Euro-area Aug. Trade Balance
2:00 p.m.: Yellen at Eurogroup in Luxembourg
2:30 p.m.: US Oct. Empire Manufacturing Index
Euro-Area Finance Ministers Meet in Luxembourg
Hungary PM Orban in China
Russian Foreign Minister Sergei Lavrov visits China

Corporate Events

Earnings include LaSalle Logiport REIT, Arcs, Charles Schwab


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