Morning Report

October 23, 2023

“The currency markets struggled for direction in a particularly volatile period last week, on the back of some mixed macroeconomic data releases. The focus is firmly on growth differentials and central bank decisions in this week’s calendar, with a raft of PMI survey data tomorrow ahead of various policy meetings in the coming days.”

Tim Hallinan – Trading Director


Main Headlines

In fiscal year 2023, the US government reported a budget deficit of $1.7 trillion – a 23% increase from the previous year. This deficit was primarily driven by a decrease in revenues and an increase in spending on programs such as Social Security, Medicare, and interest payments on the federal debt. This deficit is the largest since the $2.78 trillion gap recorded in 2021, marking a significant return to increasing deficits after two consecutive years of decline during President Joe Biden’s initial two years in office.

Moody’s, the credit ratings agency, revised Britain’s outlook from ‘negative’ to ‘stable’ on Friday. They noted that policy predictability has been restored after heightened volatility in the previous year surrounding the ‘mini-budget’ introduced by then-Prime Minister Liz Truss. This move by Moody’s comes after a series of unfunded tax pledges by Truss, which had spooked markets, ultimately leading to her resignation. Her successor, Prime Minister Rishi Sunak, reversed these policy decisions and pledged to restore economic stability in the country.


Sterling has consolidated its position this morning after a choppy week of trading that saw it gain versus the dollar but weaken against the euro. A sharp decline on Friday, driven by disappointing consumer spending data, saw the pound hit its weakest against the euro in five months, although much of this has been recovered since. A relentless global bond selloff also dragged up UK gilt yields last week, when 30-year sovereign borrowing costs hit their highest level since 1998 at 5.16%. Today is particularly quiet for UK data, with investors eyeing flash PMIs and unemployment claimant count change tomorrow morning, in a day set for significant sterling price action. Services and manufacturing output are expected to strengthen slightly, but to reinforce the stagflationary outlook for the UK economy. Markets will be wary of taking the PMI figures at face value, however, given the significant revision in the final print last month.


The euro rode the waves of the global macroeconomic backdrop last week, achieving pockets of strength in dollar weakness in the absence of eurozone data. This week is sure to give the common currency its own voice, however, as market participants and the ECB digest flash PMIs and business climate survey data ahead of the monetary policy decision on Thursday. A rates hold is all but fully priced in for this meeting, and so it will be the forward guidance that is of particular interest to investors, with some pencilling in rate cuts as early as April 2024. Some lower tier data today precedes the big hitters later on in the week, in the form of the Deutsche Bundesbank monthly report on economic conditions, followed by Eurostat’s consumer confidence survey.


A dented but still-elevated dollar struggled to gain traction last week in spite of more exceptionally strong economic data, as Fed Chair Powell’s remarks steepened the US Treasury yield curve. A cautious but balanced tone struck by Powell gave credence to the notion that the hiking cycle has concluded and that borrowing costs were instead likely to remain as they are for a long period, which saw near-term yields fall whilst longer tenor yields continued their climb towards the 5% mark. The data calendar this week focuses attention on the US’ positive growth divergence, with flash PMIs on Tuesday set to illustrate current conditions, whilst the preliminary GDP estimate is expected at a 4.3% annualised rate for the previous quarter on Thursday. Furthermore, with the Fed’s rate policy decision next week, their favoured inflation gauge – the core PCE index – will be a crucial market mover on Friday.


US Treasuries and gold saw declines, and crude oil slipped as investors reduced hedges against a further escalation in the Middle East conflict. Israel held back on a ground offensive into Gaza while continuing efforts to secure the release of hostages. The price of oil fell to $87 a barrel, and gold retreated from a five-month high. Meanwhile, Europe’s Stoxx 600 index and US futures remained relatively stable.

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

2:30 p.m.: US Chicago Fed Sept. National Activity Index
3:00 p.m.: Israel rate decision
4:00 p.m.: Eurozone Oct. Consumer Confidence
EU foreign ministers meet in Luxembourg
California Governor Gavin Newsom is in China, through Oct. 29
Markets closed in Hong Kong, Thailand, New Zealand

Corporate Events

Earnings include UniCredit, Philips


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