Morning Report

September 21, 2023

“A hawkish Federal Reserve rate pause last night extended the Dollar’s three-month rally, as a resilient US economy gives the confidence to go all in on the higher-for-longer strategy. A volatile Sterling will be on the market’s radar this afternoon as we await the Bank of England’s coin flip decision.”

Sam Cornford – Head of Trading


Main Headlines

A bipartisan group of lawmakers in the US House of Representatives announced late Wednesday that they have agreed upon a framework for legislation to provide temporary funding, thereby preventing government shutdowns set to occur on October 1. In the absence of swift action by Congress, the current fiscal year ends at midnight on September 30, leading to the expiration of funding for numerous federal programs. Additionally, the US Department of Health and Human Services (HHS) announced on Wednesday that it will distribute free COVID-19 tests to households across the country. Starting from September 25, households will have the opportunity to order up to four free tests.

Prime Minister Rishi Sunak has announced a revision of Britain’s climate change plans on Wednesday, indicating a delay in implementing a ban on the sale of new petrol cars. He cited the need to maintain the public’s consent during the transition to net-zero emissions. Sunak emphasised that the UK remains committed to the legally binding goal of achieving net-zero emissions by 2050. However, he suggested that Britain can afford to make slower progress toward this goal because it is significantly ahead of other countries in the world.


Sterling is trading slightly weaker this morning following a tumble yesterday, as lower-than-expected inflation and a hawkish Fed weighed on the Pound. From a near certainty to a coin toss, this afternoon’s Bank of England rate decision has evolved into a finely balanced risk event, where a recovery of the past week’s losses would require a resolutely hawkish hike with heavy signals towards a further hike and modest cuts next year – an unlikely event given MPC members’ dovish comments in recent weeks. A more dovish tilt in a similar tune to the ECB last week, on the other hand, could put Sterling in freefall and squander more of its monetary policy-related gains from earlier on in the year.


The Euro reached fresh multi-month lows before stabilising after the Dollar expanded its Treasury yield advantages. By contrast, EUR/CHF surged this morning as the Swiss National Bank failed to deliver on a widely expected 25bps rate hike. The Eurozone calendar is due to burst into life today after a dearth of macroeconomic data this week, with speeches from ECB member Schnabel and President Lagarde and a consumer confidence index to come this afternoon. A leading indicator of consumer spending, the confidence index is forecast to show a flat, pessimistic -16.


The Dollar extended its late cycle gains last night as the Federal Reserve unanimously decided on a pause that was more hawkish than expected. In the much-awaited dot plot, another hike was pencilled in for November, and median rates throughout 2024 and beyond were scaled up, showing only modest cuts. Resilient US growth and a strong job market afforded more room to the Fed to hammer down on their inflation battle and the ‘higher-for-longer’ strategy. A ‘soft landing’ is not the base forecast, but significantly stronger GDP growth is expected than was estimated earlier in the year – the US economy is set to grow 2.1% in 2023 despite a rapid tightening in credit conditions. Later today, unemployment claims, existing home sales, and the Philadelphia Fed Manufacturing Index are in the diary.


Stocks experienced a decline following the Federal Reserve’s decision, while traders awaited the outcome of the Bank of England policy decision. In Europe, the Stoxx 600 Index dropped by 0.7%, with nearly all industry sectors in negative territory. Futures contracts for major US indices also slipped, continuing the losses observed on Wall Street the previous day. In Asia, a key gauge of stocks registered its most significant decline in over a month. Meanwhile, Treasuries mostly saw lower prices, and the dollar strengthened.

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

8:45 a.m.: France Business Confidence
9:30 a.m.: SNB Rate Decision
9:30 a.m.: Riksbank Rate Decision
10:00 a.m.: Norway Rate Decision
10:00 a.m.: Spain July Trade Balance
1:00 p.m.: BOE Rate Decision
1:00 p.m.: Turkey Rate Decision
2:30 p.m.: US 2Q Current Account Balance
2:30 p.m.: US Weekly Initial Jobless Claims
2:30 p.m.: US Sept. Philadelphia Fed Business Outlook
4:40 p.m.: ECB’s Schnabel speaks
Taiwan Rate Decision
SARB Rate Decision

Corporate Events

Earnings include Darden, FactSet, Next, JD Sports


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