Morning Report

September 20, 2023

“UK CPI inflation sent the Pound falling this morning as strong disinflation took markets by surprise. The Bank of England decision tomorrow is now primed to be a much closer call, unlike the Federal Reserve’s much anticipated hold this evening.”

Tim Hallinan – Trading Director


Main Headlines

US Treasury Secretary Janet Yellen expressed confidence in the potential for a “soft-landing” scenario for the US economy, even in the face of near-term risks such as a United Auto Workers strike, a looming government shutdown threat, the resumption of student loan payments, and potential fallout from China’s economic challenges. Yellen noted on Monday that she observes signs that the economy is continuing to make significant progress in curbing inflation while sustaining a robust labour market and strong consumer spending.

On Wednesday, Britain’s Home Secretary, Suella Braverman, emphasised the need for a pragmatic approach to achieving the goal of net-zero emissions, stating that the country cannot “save the planet by bankrupting the British people.” This statement comes ahead of a speech by Prime Minister Rishi Sunak, expected later in the week, in which he may announce the postponement or adjustment of certain government policies that support the long-term plan to achieve net-zero emissions by 2050. “We have to adopt a pragmatic approach, a proportionate approach and one that also serves our goals and we’re not going to save the planet by bankrupting the British people,” Suella told Times Radio.


Sterling plunged this morning as headline CPI inflation printed a significant downside surprise, rendering tomorrow’s Bank of England rate decision a closer one for markets. Consumer price rises fell to 6.7% in August from 6.8% in July, compared to a 7.0% economist forecast. According to the ONS, a drop in hotel prices and airfares drove the index lower alongside decelerating food prices, offsetting spikes in fuel prices and alcoholic taxes. The closely inspected core CPI also showed a sharp drop to 6.2% versus a 6.8% measure. The lower-than-expected inflation data has prompted markets to revise expectations of how high the BoE will elevate rates, with a pause tomorrow now at a market-priced probability of roughly 45%, up from 20%.


The Euro continues its range-bound trading versus the Dollar, as a macro diary drought leaves other central bank decisions firmly poised to take the driving seat. The common currency won gains derived from the Sterling slide this morning and can be expected to shift with the Fed and BoE decisions, until the only crucial Eurozone data points of the week arrive with the PMIs on Friday.


The Dollar remains firm against most major currencies as US bond yields stand near decade highs, with soaring oil prices stoking inflation fears. The market has fully entrenched the ‘higher-for-longer’ narrative in its pricing, and more clues can be expected to be released this evening when investors comb through potential revisions to the 2024 dot plots, which indicate the FOMC members’ expectations for the future evolution of interest rates.  A hawkish hold remains the most likely outcome, where the door should remain open for a flexible hike and pushback can be expected against rate cut expectations. The Canadian Dollar enjoyed a short rally against the Dollar yesterday, as surging oil prices and higher-than-expected Canadian inflation buoyed the exporter currency.


Stocks faced difficulties in gaining on Wednesday, with U.S. yields remaining near the highest levels in a decade, primarily due to rising oil prices. Although Brent crude futures experienced a 1% decline during the Asian session and retreated from their 10-month highs, they still stood at $93.52 per barrel, representing a 30% increase over the past three months, supported by output reductions from Saudi Arabia and Russia. The STOXX 600 European oil and gas index reached its highest level since mid-February, marking a gain of approximately 13.5% over the last two months.

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

10:00 a.m.: South Africa Aug. CPI
11:00 a.m.: Sweden sells bills
12:00 p.m.: EU sells bills
2:30 p.m.: ECB’s Elderson speaks
8:00 p.m.: Fed Rate Decision
8:30 p.m.: Fed’s Powell speaks

Corporate Events

Earnings include Baloise Holding, M&G, FedEx, General Mills


To learn more about Ballinger & Co., please visit our website or our LinkedIn page.