October 30, 2023

“Back-to-back central bank policy decisions take centre stage this week, sandwiched between a raft of US and eurozone macroeconomic data that will keep investors on their toes throughout the coming days. With most banks likely to have reached terminal rates, markets will be more concerned with the long-term view and how events unfold into 2024.”

Sam Cornford – Head of Trading

Main Headlines

In the US, the tentative agreement reached between the United Auto Workers (UAW) and two of the Detroit Three automakers represents another victory for labour unions that have been increasing their efforts to pressurise large corporations. In the case of the tentative Ford and Stellantis deals, the total pay increases, when considering compounding and cost-of-living adjustments, amount to over 33%. Labour gains made by these unions could potentially encourage more organising efforts and motivate non-unionised companies to take measures to resist such efforts.

The North Sea Transition Authority (NSTA), which is Britain’s oil and gas regulator, has awarded 27 new hydrocarbon exploration licences. This move has drawn criticism from climate activists who are concerned about allowing fresh drilling. The licensing round is the first of its kind since 2019 and was initiated about a year ago, attracting 115 applications from 76 different companies. However, some North Sea producers chose not to participate in the round due to the introduction of a windfall tax on the sector. Notable successful bidders include Shell, Equinor, and DNO.

GBP

Sterling has weakened slightly against its major peers to kick off a week in which Thursday’s Bank of England monetary policy decision is the central focus for the pound. Data from job search website Adzuna indicated that online job adverts and advertised salaries both fell by 1.6% in September – a month that usually sees a surge in activity – signalling further cooling in the labour market that will please policymakers ahead of the rate decision. Some second-tier lending data is due to be released this morning, including mortgage approvals and net consumer credit, both of which are forecast to soften from September’s prints. After today, Wednesday’s final revision to the manufacturing PMI will be the last data point available to the BoE before Thursday’s policy vote, where a rate pause is the widely expected outcome.

EUR

The euro has steadied ahead of a data-packed week that begins with CPI inflation and GDP data this morning. Last week’s ECB decision was, as Lagarde hoped and economists expected, a relatively quiet affair that reiterated familiar language and gave few clues regarding future rate cuts. The stable near-term rates and growth outlook has somewhat dampened the euro’s sensitivity to macro data, but a raft of local market movers this week is certain to generate some price action. Spanish flash CPI read at a stable 3.5% this morning versus an expected 3.8%, as price pressures continue to ease amid elevated interest rates and a sluggish euro area economy. Economist consensus foresees further confirmation of this narrative when German preliminary Q3 GDP declines by -0.2%, tipping into recessionary territory. German preliminary CPI is then released by region throughout the day, and the consolidated figure this afternoon is forecast to fall sharply from 4.5% to 4.0%.

USD

A strong dollar continues to firm this morning ahead of the next Federal Reserve decision on Wednesday. Last Friday’s spending report saw the Fed-favoured core PCE inflation index rise 3.7% year-on-year, as expected. Furthermore, consumer spending continued to rise against a backdrop of falling real disposable incomes. The natural conclusion is that consumers have funded recent stellar growth by running down savings and increasing borrowing – the resilient demand that has underpinned the US growth story is built upon unsustainable foundations, and may rapidly soften in Q4 if real disposable incomes do not move higher. This week’s diary puts the US labour market under the microscope as investors await the JOLTS job openings survey, unemployment claims, wage growth, and non-farm payrolls. The Fed will be keen to see further loosening and easing inflationary pressures in the data it receives before its policy decision, where an expected pause will place high importance on the press conference and forward guidance.

Markets

Oil prices have slipped alongside gold and government bonds as demand for safe-haven assets eased, owing to the more cautious progression of Israel’s military action in Gaza than anticipated. Brent crude fell below $89 a barrel, having risen nearly 3% on Friday, while WTI crude oil approached $84 per barrel. The 10-year Treasury yield rose by approximately four basis points, and the price of gold fell below $2,000 per ounce.

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

7:00 a.m.: Finland Oct. Business Confidence
8:00 a.m.: Turkey Oct. Economic Confidence
9:00 a.m.: ECB’s Simkus speaks
9:00 a.m.: Spain Oct. CPI
10:00 a.m.: Germany 3Q GDP
11:00 a.m.: Euro-area Oct. Economic Confidence
2:00 p.m.: Germany Oct. Harmonized CPI
2:00 p.m.: ECB’s Guindos Speaks
3:30 p.m.: US Oct. Dallas Fed Manufacturing Activity

Corporate Events

Earnings include BYD, GoTo, Panasonic, Bank of China, McDonald’s, Arista Networks, Public Storage, Pinterest, Simon Property, SoFi

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