Morning Report

October 20, 2023

“Four- and five-month peaks in bond and equity market volatility are sending ripples across financial markets this week. Despite strong intra-day movements in FX majors, however, the dollar is struggling to gain enough traction from continuous positive data surprises to continue its broad rally. The pound, however, has slid this morning on the back of a bundle of disappointing economic data this morning.”

Tim Hallinan – Trading Director


Main Headlines

Ahead of a White House summit today, the prospects for resolving long-running disputes between the United States and the European Union over Trump-era tariffs and US green subsidies have dimmed. European Commission chief Ursula von der Leyen indicated that the focus of her meeting with US President Joe Biden and European Council President Charles Michel would be on addressing the Israel-Gaza conflict and ensuring continued support for Ukraine, with trade issues taking a back seat during the discussions.

The UK recorded a smaller-than-expected budget deficit of £14.35 billion ($17.37 billion) in September, according to the Office for National Statistics. Government borrowing in the first half of the 2023/24 financial year, from April to September, totalled £81.7 billion, an increase of £15.3 billion compared to the first half of the previous financial year. Chancellor Jeremy Hunt recently mentioned that higher interest rates might cost the UK an extra £20 billion to £30 billion per year, and he has largely ruled out near-term tax cuts, emphasizing the importance of addressing inflation.


Sterling has plunged this morning after disappointing retail sales weakened growth expectations for the UK this quarter. Retail consumer spending fell -0.9% in September after rising 0.4% in August, well below the -0.3% fall forecast by economists. According to the ONS, this was partly driven by warmer autumnal conditions that suppressed spending on winter clothing. Meanwhile, consumer confidence fell sharply to its most pessimistic level since July, rounding off a potential stagflationary outlook in the UK, characterised by low growth and high inflation. UK macroeconomic data is finished for the week, so expect the pound to drift with broader trends as markets digest the contents of this morning’s releases.


The euro has struggled for direction this week, with its movement characterised by range-bound trading accompanied by volatile swings driven by the USD-leg. With investors left in the dark regarding eurozone economic updates in a week lacking macro data, continued strong US prints have so far failed to translate into further euro weakness. This morning, German producer prices actually fell -0.2% month-on-month in September, but this did not generate any significant bearish momentum. Price action on the EUR leg is set to pick up next Tuesday, however, with the release of the flash PMIs that will give a renewed picture of the euro area growth outlook.


The dollar is struggling to gain traction from typically supportive data, as the muted effect of a renewed yield surge and geopolitical jitters potentially indicates overstretched strength for the greenback. A speech from Federal Reserve Chair Powell yesterday afternoon was generally interpreted as dovish by markets, in which he emphasised caution and uncertainty whilst leaving the door open to further tightening, leading investors to trim the prospects of further hikes. The extent of dollar weakness was surprising, given comments about persistent above-trend growth and a still-tight labour market that may warrant further tightening. Much of this decline has pulled back this morning however, as a relentless bond selloff saw benchmark Treasury yields brush the psychological 5.0% level overnight. But broad bullish momentum seems nowhere to be found, owing in part to a general consensus that yields are being driven not only by monetary policy, but also by additional fiscal premium and bond supply dynamics. Today, a final speech from Federal Reserve official Harker takes place ahead of the pre-meeting blackout.


Global equities declined in response to the escalating conflict in the Middle East, with oil and gold prices rising. Meanwhile, Treasuries gained value as yields, which were at multi-year highs, attracted buyers. In Europe, the Stoxx 600 Index fell by 1%, and US equity futures were also in decline. Asian stocks faced their largest weekly drop in two months.

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

8:00 a.m.: Germany Sept. PPI
8:00 a.m.: UK Sept. Retail Sales
8:00 a.m.: Riksbank’s Breman speaks
10:30 a.m.: Riksbank publishes FX sales
3:00 p.m.: Fed’s Harker speaks
6:15 p.m.: Fed’s Mester speaks
Joe Biden hosts the EU’s Ursula von der Leyen and Charles Michel in Washington
S&P may become first of big three ratings agencies to give IG status to Greece

Corporate Events

Earnings include American Express, Schlumberger


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