Morning Report

September 12, 2023

“The UK labour market showed some signs of cooling this morning as unemployment notched higher, potentially easing pressures on the Bank of England when the Monetary Policy Committee meets next week.”

Tim Hallinan – Trading Director


Main Headlines

This week, the US House of Representatives reconvenes for a contentious battle over spending cuts and impeachment, which could potentially gridlock the Republican-controlled chamber as Congress grapples with the looming threat of a government shutdown. With just 12 days of session before the September 30 funding deadline, the challenge is to agree on 12 appropriations bills that can pass both chambers and receive President Biden’s approval. House Republicans are divided, with around 30 members of the House Freedom Caucus pushing for a spending cut to $1.47 trillion for the 2024  fiscal year.

Failed retailer Wilko is set to vanish from British high streets next month, with its entire chain of homeware stores slated for closure, resulting in the loss of at least 9,100 jobs, according to administrators PwC. The demise of Wilko, originally a hardware store founded in 1930 in Leicester, is attributed to the challenging economic climate in Britain, marked by high inflation and a series of interest rate hikes. In related news, British finance minister Jeremy Hunt will emphasise tackling inflation in his November 22 budget update and does not anticipate having surplus funds available for government spending.


Sterling inched higher this morning after the release of labour market data, but soon handed back its gains and more as markets digested the details. The unemployment rate showed a slight cooling, notching higher at 4.3%, up from 4.2% the previous month. Wages also grew at a record pace again in July at 8.5% versus an 8.2% forecast. The data initially gave Sterling a small lift under expectations that it may put further pressure on the Bank of England to continue tightening but, under the surface, private sector pay had barely increased. In a speech by staunch BoE hawk Catherine Mann last night, she warned against pausing interest rate hikes too soon and contended that she would prefer the risk of overtightening if it prevented inflation from becoming embedded, although this failed to generate any market movement. The macro calendar is sparse for the rest of the day – markets await a raft of output data tomorrow morning, including GDP and industrial production.


The Euro has weakened against most major currencies in the early morning trade. EU economic forecasts released yesterday revised down GDP growth estimates in 2024. The report explained that EU economic resilience has lost momentum due to the headwinds of high inflation, weak demand, and a sharp slowdown in bank credit. Inflation forecasts, however, are broadly unchanged. The ZEW Economic Sentiment survey today for Germany and the Euro area is poised to show worsening pessimistic sentiment on the state of Eurozone economic health. As some of the last key pieces of data, they will set the tone for Thursday’s knife-edge ECB policy decision.


The Dollar is well bid against most major currencies this morning, as its rally awaits the test of a bundle of US economic data this week. With the Federal Open Markets Committee on blackout ahead of its policy decision next week, another quiet session is expected today ahead of the CPI release tomorrow. The only macro release of note is the NFIB Small Business Index, which surveys small businesses, asking respondents to rate economic conditions such as labour markets, inflation, sales, and capital spending. Small business confidence is expected to cool slightly from an eight-month peak last month, and markets will be looking for clues as to the US growth and inflation outlook.


Stock markets stabilised and the dollar remained relatively unchanged as investors anticipated important US inflation data and Apple Inc.’s new product lineup. In Europe, the Stoxx 600 saw a slight 0.2% increase, while US S&P 500 futures showed little movement. In Asia, the Hang Seng property index initially dropped as much as 2.6% to a new low for September. However, reports that Country Garden secured creditor support to postpone onshore bond payments for three years led to a more than 1% gain in the index. Additionally, Bank of Japan Chief Kazuo Ueda’s recent remarks suggesting the possibility of stimulus tapering in 2023 continue to impact the local bond market, with the benchmark 10-year yield reaching its highest point in nearly a decade.

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

9:00 a.m.: Spain Aug. CPI
9:00 a.m.: Turkey July Retail Trade
11:00 a.m.: Germany Sept. ZEW Survey Expectations
11:00 a.m.: Euro-area Sept. ZEW Survey Expectations
11:30 a.m.: Germany to sell bonds
12:00 p.m.: US NFIB Small Business Optimism
2:00 p.m.: India Aug. CPI
2:00 p.m.: India July Industrial Output
Germany July Current Account Balance


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