Morning Report

October 17, 2023

“ONS data today has shown that Britain has passed its peak in wage growth, in a further sign of labour market easing that will dampen price growth pressures. The CPI print tomorrow will be the last piece of the inflationary puzzle for the Bank of England’s looming policy decision, where a significant upside surprise will be required to put a hike on the table.”

Sam Cornford – Head of Trading


Main Headlines

US President Joe Biden is scheduled to visit Israel on Wednesday for discussions with Israeli Prime Minister Benjamin Netanyahu, according to an announcement by Secretary of State Antony Blinken on Tuesday. The White House is navigating complex security and political issues as it contemplates this trip to Israel, which could have potential diplomatic benefits for Biden. Despite their differences, Biden and Netanyahu, who are often seen as uneasy allies, have come together to address the challenges and disagreements regarding the Middle East, with Biden emphasising support for independent Israeli and Palestinian states.

A report from a prominent think-tank, the Institute for Fiscal Studies, has highlighted that Britain’s constrained financial state means that whoever governs in the coming years will have limited flexibility to either reduce taxes or increase spending. The report warns that offering voters a tax cut before the expected 2024 election could lead to a “short-term economic sugar rush,” prompting higher Bank of England interest rates and potentially resulting in a prolonged recession. “The price of our high levels of indebtedness, failure to stimulate growth and high borrowing costs is likely to be a protracted period of high taxes and tight spending,” IFS director Paul Johnson said.


Sterling has eased against most major currencies this morning on the back of soft wage growth data in August. Average earnings growth has passed its peak in the UK it seems, as wages in the three months up to August grew 8.1%, down from 8.5% in July. The more stable figure excluding bonus payments ticked downwards from an upwardly revised 7.9% to 7.8%, which represents an inflation-adjusted 0.7% real terms increase. Although concerns about reliability in the previous meeting, wage growth is a closely watched measure for the Bank of England, who can more confidently justify a continued pause as evidence mounts of a loosening labour market. The next key data point is CPI inflation tomorrow morning, which is expected to decline slightly to 6.6% in September – a significant surprise would probably be required to put another hike back on the table in November.


A quiet euro has drifted sideways today as it awaits a market-moving impulse. Eurozone-specific risk events are sparse in general this week, but US consumption and production data this afternoon are likely to spark EUR/USD into life. So too will Chinese GDP and retail sales released in the early hours of tomorrow morning, as markets wait to see if the slow drip-feed of stimulus has materialised into any positive signs for the eurozone’s largest trading partner that may boost sentiment. This morning, eurozone pessimism is forecast to ease in the ZEW economic sentiment print, although this is rarely a significant driver of volatility. ECB member Nagel is also due to speak this evening.


The dollar remains firm in the early morning trade ahead of US retail sales and industrial production macro releases this afternoon. Economists anticipate that auto worker strikes will have generated stagnant industrial output in September following a small expansion in the previous month. Retail sales will be the big test of the US exceptionalism narrative that upholds much of the dollar’s strength, however, as consumer spending has generally been seen as a significant driver of US economic resilience. Both the core and headline figures are expected to ease but to remain in expansion in September, although slowing credit card sales tilt the risks to the downside. Fed official Bowman is also due to speak this afternoon, ahead of a blackout that begins on Saturday before the rate decision on November 1st.


Treasuries edged lower, and stock markets held steady as investors closely watched diplomatic efforts to prevent the Israel-Hamas war from expanding, and while simultaneously evaluating the most recent updates regarding corporate earnings. Yields on the US 10-year benchmark rose past 4.7%, and the 30-year yields increased by more than five basis points, leading to a steeper yield curve. In Europe, the Stoxx 600 Index and US equity futures remained relatively stable following gains in the S&P 500 and the Nasdaq 100 on Monday. Meanwhile, an Asian equity gauge reversed a two-day decline.

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

11:00 a.m.: Germany Oct. ZEW survey
11:05 a.m.: BOE’s Swati Dhingra speaks
2:00 p.m. Fed’s Williams moderates discussion
2:30 p.m.: US Sept. retail sales
3:00 p.m.: ECB’s Knot speaks
3:15 p.m.: US Sept. Industrial Production
3:20 p.m.: Fed’s Bowman speaks
4:00 p.m.: ECB’s Centeno speaks
4:30 p.m.: SARB Monetary Policy Review
4:45 p.m.: Fed’s Barkin speaks
7:00 p.m.: ECB’s Guindos speaks
7:00 p.m.: ECB’s Holzmann speaks
7:00 p.m.: ECB’s Nagel speaks

Corporate Events

Earnings include Goldman Sachs, Johnson & Johnson, Back of America, Lockheed Martin


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