Morning Report

September 25, 2023

“Last week’s packed central bank diary led to a diverging repricing of rate expectations, which triggered a Dollar surge that weakened Sterling and the Euro. Markets will be kept on their toes this week, as macroeconomic data continues to flow out of the Eurozone and US.”

Sam Cornford – Head of Trading


Main Headlines

With only a week left before the federal government in Washington faces a potential shutdown due to a lack of funding, factions within the Republican Party in the US Congress remain divided and have shown no signs of coming together to pass a stopgap funding bill. So far, Congress has been unable to pass any of the 12 regular spending bills needed to fund federal agency programs for the fiscal year starting on October 1st. House of Representatives Speaker Kevin McCarthy intends to pursue approval for four significant bills related to military and homeland security funding, in order to demonstrate progress on these fronts and win the support of Republicans.

British Defence Secretary Grant Shapps has highlighted the increasing costs associated with the plans for a high-speed rail line serving northern England. Prime Minister Rishi Sunak is considering the possibility of officially cancelling this project in the coming days. While Shapps did not confirm newspaper reports about the cancellation of the Manchester to Birmingham leg of the HS2 line, he emphasised that “Money is not infinite.” If the northern leg of HS2 is cancelled, it would represent another instance of Sunak departing from previous commitments. In the previous week, he also slowed down the implementation of key climate change measures, which included delaying the ban on the sale of new petrol-powered cars.


Sterling is steady this morning, having emerged out of last week badly bruised and down almost 3% versus the Dollar in September, as a dovish Bank of England pause and softening growth weighed on the currency. Following a significant downwards repricing in rate expectations, a sharp slowdown in services activity then stoked recession fears on Friday, as the flash PMI index printed further into contraction at 47.2, versus a 49.3 forecast. This week, Sterling investors can take a breather as they digest the implications of the new rates outlook. A relatively quieter macro diary begins today with the CBI realised sales index, which is expected to show a decelerating drop in consumer spending compared to the previous month.


The Euro has consolidated above six-month lows, as widening yield differentials with the US have put the currency on track for its worst month since May. Friday’s PMIs came in slightly better than expected but continue to print firmly in contraction, as a lack of positive growth news failed to reverse any of the losses triggered by diverging rate expectations earlier on in the week. Today, we begin with the German Ifo Business Climate Survey, a reliable indicator of economic health owing to its historic correlation with conditions in Germany and the wider Eurozone – further pessimism in business activity is expected here. Markets will also keenly observe ECB President Lagarde’s speech at the EU Parliament, before eyes turn to preliminary CPI inflation data on Wednesday and Thursday.


The Dollar extended its gains this morning as the implications of the Fed’s hawkish pause sends ripples across the currency markets. It continues to benefit from a hawkish repricing as US bond yields edge ever higher towards the Fed’s median expected rates for 2024. In contrast to Europe, US economic data refused to relent on Friday – the composite PMI figure disappointed on expectations but narrowly avoided contraction. Today is relatively quiet, with only a speech from FOMC member Kashkari tonight, but markets will have plenty of growth and inflation data to pore over this week as a consumer confidence index, durable goods orders, final Q2 GDP, unemployment claims, and the PCE price index are released throughout the coming days.


Asian equities faced pressure, primarily due to the performance of Chinese stocks, while European share futures indicated a lower opening, reflecting cautious sentiment in the market. Meanwhile, Treasuries experienced declines, and oil prices increased for the second consecutive day. Contracts for the Euro Stoxx 50 decreased by approximately 0.3%, with equity markets in China, Australia, and South Korea contributing to a broader regional decline, marking the fifth decline in six days. In contrast, Japanese equities and US stock futures showed modest gains, diverging from the overall trend.

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

7:00 a.m.: Finland Aug. PPI
9:00 a.m.: Spain Aug. PPI
9:00 a.m.: ECB’s Villeroy speaks
9:30 a.m.: BOJ’s Ueda speaks
10:00 a.m.: Germany Sept. IFO Business Climate
3:00 p.m.: Belgium Sept. Business Confidence
3:00 p.m.: ECB’s Lagarde Speaks in EU Parliament
3:00 p.m.: ECB’s Schnabel speaks
IAEA General Conference starts in Vienna

Corporate Events

Earnings include Nine Dragons Paper


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