Morning Report

October 26, 2023

“Broad US dollar strength has returned after a blip on Monday as the FX markets continues its volatile swings. The US economic resilience that underpins the moves will face critical tests in the GDP and jobless claims data this afternoon, and the ECB decision may throw up some surprises.”

Sam Cornford – Head of Trading


Main Headlines

Mike Johnson, a conservative Republican, was elected as the new speaker of the US House of Representatives on Wednesday. The party-line vote, with 220 in favour and 209 against, concluded a tumultuous three-week period during which the chamber was unable to perform its essential functions. The position had been vacant since Kevin McCarthy was removed as speaker on October 3 by a small faction of fellow Republicans. The stability and renewed hope for averting a government shutdown have proven to be USD-supportive.

In an upcoming speech today, British Prime Minister Rishi Sunak is expected to emphasise the importance of addressing the risks associated with artificial intelligence to fully harness its benefits. This statement is ahead of the first global AI Safety Summit scheduled for November 1-2, which will bring together AI companies, political leaders, and experts at Bletchley Park to discuss the potential existential risks posed by AI and work towards establishing international consensus on its safe development. Sunak aims to position Britain as a global leader in AI safety, particularly in the post-Brexit landscape, where the UK seeks to carve a niche in the AI sector amid competition between the United States, China, and the European Union.


Sterling continues its plunge to a 3-week low this morning, having fallen almost 2% peak-to-trough since Tuesday. Its slide remains a story of broad dollar strength, mirroring losses across G10 currencies. The UK PMIs were fairly disappointing but came in as expected – it is the widening divergence in the growth story to the US driving weakness, alongside depressed risk appetite. The pound will likely remain at the mercy of dollar moves towards the end of the week, as a sparse macro diary provides only the Confederation of British Industry realised sales and a speech from BoE official Cunliffe today.


The euro has weakened further this morning ahead of the ECB monetary policy decision today, in which it is set to snap a 15-month streak of rate rises. Markets have almost completely priced out the possibility of a hike in this afternoon’s meeting, as dovish signals from the last decision have been compounded by softening lending data and weak private sector business activity. Such certainty in the decision narrows the focus to policymakers’ forward-looking guidance, where attention will be paid to discussions on the central bank’s balance sheet and its intentions regarding the balance of risk between inflation and growth. A full 25bps rate cut is currently priced in for July 2024, something which ECB officials have been keen to describe as too early.


The dollar index has regained its bullish momentum on the back of soured risk sentiment, strong economic growth, and a renewed rally in Treasury yields. An uncertain economic and interest rate outlook has buoyed US government bond volatility throughout October – in the past week, the 10-year yield has spiked to 5%, subsequently plunged 25bps in response to a tweet, and then reclimbed back towards the 5% mark, as investors continuously revise expectations for future interest rates as well as the extra compensation received for holding longer maturity debt, even in the absence of new data. The US economic resilience narrative will face key tests this afternoon, with the first Q3 GDP estimate expected at 4.5%, followed by unemployment claims and core durable goods orders, both of which are expected to show a softening in inflationary pressures. Until then, traders will be nervously watching the USD/JPY pair after it breached the 150 mark this morning, a level generally seen as a line-in-the-sand likely to trigger Japanese government FX intervention, with the yen at a one-year low.


Global stock markets experienced a decline due to concerns stemming from high-profile corporate earnings misses, which have raised doubts about the strength of the economy and dampened sentiment for riskier assets. The Stoxx 600 index in Europe dropped by over 1%, and this negative sentiment extended to Wall Street, as contracts for the Nasdaq 100 and S&P 500 indices declined by 1.3% and 0.8%, respectively. In Asia, the MSCI Asia Pacific Index was on track for its lowest level in nearly a year.

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

8:00 a.m.: Sweden Sept. Trade Balance
9:00 a.m.: Sweden Oct. Economic Tendency Survey
9:00 a.m.: Spain 3Q Unemployment
9:00 a.m.: Hungary central bank governor Matolcsy speaks
1:00 p.m.: Turkey Monetary Policy Decision
1:00 p.m.: Ukraine Monetary Policy Decision
2:15 p.m.: ECB Monetary Policy Decision
2:30 p.m.: US 3Q GDP
2:30 p.m.: US Sept. Wholesale Inventories; Weekly Initial Jobless Claims
2:45 p.m.: ECB’s Lagarde at briefs Media
4:00 p.m.: BOE’s Jon Cunliffe speaks
EU leaders summit in Brussels


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