Morning Report

September 18, 2023

“It’s crunch time for five major central banks this week – as we saw in the aftermath of the ECB hike last week, interest rate decisions and their accompanying statements are likely to drive significant volatility in the FX markets over the coming days.”

Tim Hallinan – Trading Director


Main Headlines

In the US, House Republicans are considering a short-term spending agreement as a potential solution to a looming government shutdown in two weeks. House of Representatives Speaker Kevin McCarthy announced on Sunday his intention to put a defence spending bill to a vote this week, regardless of the outcome, despite facing resistance from staunch fellow Republicans. McCarthy is facing challenges in bringing fiscal 2024 spending legislation to the House floor, as Republicans are divided over their demands to reduce spending to the 2022 level of $1.47 trillion, which is $120 billion less than the spending level McCarthy agreed upon with President Biden in May.

In Britain, home asking prices saw a slight increase this month, rebounding from a significant drop in August. However, it’s anticipated that buyer affordability will improve in the upcoming months as elevated mortgage rates start to ease. Property website Rightmove reported that average asking prices for homes rose by 0.4%, following a steep 1.9% decline in the previous month. Nevertheless, this increase falls below the ten-year average of a 0.6% rise typically seen in September.


Sterling is slightly down in this morning’s trade following a weakening parallel with the Euro later last week. After GDP data disappointed on estimates on Wednesday, a bare macro diary left the Pound to move at the will of the other major currencies, with its losses against the Dollar originating mostly from scaled back rate expectations following the ECB decision. This morning, Britain’s main manufacturing body cut its growth forecast for the sector to a 0.5% contraction this year, followed by 0.5% growth in 2024, and UK rental prices also surged at a record rate in August at 12% versus the prior year. Investors this week will look towards the key CPI inflation figure on Wednesday before the Bank of England make their interest rate decision on Thursday.


The Euro has made small gains today after posting its ninth straight week of losses versus the Dollar for the first time. Now that the dust has settled on its dovish 25bps hike that sent the common currency plummeting, markets will look to see if ECB hawkish dissent can gain any traction and buoy the Euro. ECB policymaker Martins Kazaks, for example, warned against market bets on rate cuts in the first half of next year, dismissing the dovish hike notion and arguing that another hike cannot be ruled out. A full 25bps cut is priced in by July. With the near-term ECB rate path all but cemented, the Euro is likely to be somewhat less sensitive to the macroeconomic data, unless it can indicate a substantially different narrative. In a mostly quiet week, expect price action to be driven by the Federal Reserve until a raft of PMI data is released this Friday.


A seemingly unstoppable Dollar is standing strong just below its six-month high achieved on Thursday. Despite a mixed bag of data on Friday that showed expanding industrial output and falling consumer sentiment, the Dollar-positive shift that began in July continues to fuel a late-summer rally. The Federal Reserve’s FOMC meeting on Wednesday is the headline risk event for this week, where a pause is almost fully priced in by markets. The Fed’s statement and ‘dot plot’ forecasts are therefore the biggest potential triggers for Dollar volatility, with markets looking towards the November decision and 2024 rate cuts. A substantial upwards revision of GDP growth is expected, and a hawkish tone is expected to be struck in order to retain flexibility, although most agree that a peak has already been reached.


Stocks declined as traders opted for a more cautious approach ahead of a series of policy decisions expected this week from the US, UK, and Japan. Societe Generale SA saw a significant drop of over 7%, making it one of the major contributors to the decline in Europe’s Stoxx 600 Index, as the lender’s strategic plan failed to meet investor expectations. Technology shares also registered losses, following the downward trend set by Nvidia Corp. and Meta Platforms Inc., both of which experienced more than a 3.5% decrease in the US on Friday. US equity futures, however, remained stable.

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

11:00 a.m.: ECB’s Guindos speaks
2:00 p.m.: Poland Aug. CPI
4:00 p.m.: US Sept. NAHB Housing Market Index
Markets closed in Japan

Corporate Events

World Petroleum Congress continues in Calgary
IPEM Paris conference
Earnings include Stitch Fix


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