Morning Report

October 18, 2023

“Sticky British inflation has lent support to the pound this morning as markets anticipate a slow and bumpy road to the 2% inflation target. Meanwhile, yet more resilient US economic data continues to impress on expectations, with Q3 GDP growth estimates now at 5% for some analysts, although this seemingly failed to spark any further momentum in the dollar.”

Tim Hallinan – Trading Director


Main Headlines

As US Congress remains paralysed, Jim Jordan, a right-wing Republican, has requested additional time to garner support for his bid for the position of speaker in the US House of Representatives. After falling short of the required 217 votes, he delayed further action until 11 a.m. ET on Wednesday. Jordan is working to persuade the 20 fellow Republicans who voted against him to support his candidacy. This delay has allowed Democrats to advocate for a compromise candidate with bipartisan backing, a deviation from typical congressional proceedings following the removal of Speaker Kevin McCarthy on October 3.

According to government advisors, the UK requires significant infrastructure investment annually until 2050 to address climate change and reduce economic disparities between different regions. The National Infrastructure Commission (NIC) recommends investments in new power networks, as well as upgrades to rail, road, and broadband infrastructure. The NIC also suggests offering substantial subsidies for replacing domestic gas boilers with heat pumps, which should be provided free of charge to low-income households. The NIC emphasises the importance of adopting a longer-term perspective after fluctuations in public investment budgets and project reversals, such as the decision to reduce the HS2 railway’s scope.


A sticky CPI inflation read has nudged Sterling higher this morning. Consumer prices grew 6.7% year-on-year in September, the same figure as in August, as persistent inflationary pressures pushed the index to beat expectations of 6.6%. Disinflation contributions from slowing food and drink inflation were dragged down by an almost 4% rise in fuel prices. The core figure, excluding these volatile components, ticked downwards slightly to 6.1%. The small extent of the surprise means that the print is very unlikely to tempt the Bank of England to resume its policy tightening, but it was enough nonetheless to lend some support to the pound and retrace some losses from the slowing wage growth data released yesterday, which MPC member Dhingra interpreted as evidence of a relent in domestic inflationary pressures. Little else is to come from the UK side today, aside from the UK government’s House Price Index.


The euro shrugged off losses sparked by strong US economic data to end the day in the green yesterday, whilst positive news out of China has consolidated its gains this morning. JP Morgan and Citibank have updated their EUR/USD forecasts to include a slump to parity within the next six months, on the basis that the euro is yet to price in the heavy discount that would be expected in a context of resurgent energy prices and recessionary risks. Citi also cite further room for dollar strength through the US exceptionalism narrative that could further weigh on the common currency. This is not the current market direction, however, as consensus-beating GDP and retail sales figures in China this morning suggested that the slow drip-feed of government stimulus has begun to materialise into meaningful support for the flailing economy, despite concerns about the property sector. The euro is closely linked to Chinese economic fortunes, as it is a vital source of foreign demand for the eurozone and also a heavy influence on general market sentiment. A quiet day for the eurozone-specific macro data includes only final revisions to September CPI, which is rarely a cause for significant volatility.


In a surprising move, the dollar’s momentum slowed yesterday as the yield-dollar relation appeared to fizzle out. Both retail sales and industrial production shocked markets with very robust, consensus-beating prints as well as upwards revisions to previous releases. Retail sales grew 0.7% in September versus a 0.3% forecast, further indicating unwavering consumer resilience that continues to underpin much US economic growth. The Atlanta Fed’s GDPNow model now predicts 5.4% annualised growth in Q3 – a rates-induced recession remains nowhere to be found, at least in the near term. Two-year Treasury yields spiked to a 17-year peak on the back of the news, erasing declines sparked by dovish Fed speakers last week, as traders revised up prospects for further Fed hikes in December and January, with a further hike priced in at a 40% probability. However, the greenback failed to ignite a substantial rally, with no clear reason why. On today’s macro diary, various Fed speakers follow building permits data this afternoon, a leading indicator of housing market activity.


Global stock markets retreated amid rising tensions in the Middle East and concerns over inflation. US stock futures experienced a slight decline, while Europe’s Stoxx 600 index fell by 0.4%. Meanwhile, gold and oil prices resumed their rallies after a planned summit between President Joe Biden and Arab leaders was cancelled following an attack on a Gaza hospital.

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

8:00 a.m.: UK Sept. CPI
9:00 a.m.: Riksbank’s Thedeen speaks
10:00 a.m.: South Africa Sept. CPI
10:30 a.m.: Riksbank’s Floden speaks
11:00 a.m.: Eurozone Sept. CPI
1:00 p.m.: Riksbank’s Floden speaks
6:00 p.m.: Fed’s Waller speaks
6:30 p.m.: Fed’s Williams speaks
7:00 p.m.: Fed’s Bowman speaks
7:00 p.m.: Fed’s Barkin speaks
8:00 p.m.: Fed releases Beige Book
9:15 p.m.: Fed’s Harker speaks

Corporate Events

Earnings include: Morgan Stanley, Netflix, Tesla, P&G, Ally Financial, Las Vegas Sands


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