September 27, 2023

“A worsening consumer climate and a slowing housing market failed to dent the dollar yesterday as ‘higher-for-longer’ continues to drive an upwards rethinking of US rates. This dynamic will likely remain in the driving seat today before the macroeconomic calendar goes up a gear tomorrow with eurozone CPI and US GDP.”

Sam Cornford – Head of Trading

Main Headlines

The possibility of a US government shutdown on October 1st remains a concern, as the Senate made progress on a bipartisan bill yesterday aimed at preventing a shutdown just five days before the deadline. However, the House of Representatives continued to advance a conflicting measure supported solely by Republicans. Meanwhile, President Joe Biden made history on Tuesday by becoming the first US president in modern times to join a picket line, joining striking UAW autoworkers in Michigan.

Britain has granted approval to Equinor to proceed with the development of the Rosebank oil and gas field in the North Sea. This decision is expected to draw renewed criticism from environmental activists. Equinor, which holds a majority stake in Rosebank, one of the largest undeveloped oil and gas fields in the British continental shelf, will invest $3.8 billion in collaboration with its partner to advance the field’s development. The announcement is likely to rekindle discussions surrounding Britain’s climate change strategy, especially following Prime Minister Rishi Sunak’s recent move to water down the country’s interim plans aimed at achieving the 2050 net-zero emissions target.

GBP

Sterling price action has been muted this morning as it continues its worst month since Truss’ mini-budget last year. The steady erosion of the pound’s yield advantage has now almost fully reversed its strength that it achieved in the mid-summer as a result of a downwards repricing in rate expectations from an ultimately more dovish than expected BoE, whilst US treasury yields soar. The UK data drought continues today, with no notable releases or central bank speakers.

EUR

The euro has steadied against the Dollar and Sterling, taking a breather from its bruising driven by rate differentials and risk sentiment. As one of its largest trading partners, China’s worsening property sector crisis continues to weigh on the common currency, as an Evergrande unit missed payment on some yuan bonds and its chairman is put under police surveillance. On the data front, German consumer climate became more pessimistic than expected this month, and eurozone private loans volumes are also released this morning. The CPI prints tomorrow are more likely to generate impetus for euro action, however, until which the US bond market and risk sentiment will remain in the driving seat.

USD

The dollar continues to eke out gains from a souring risk environment and a bond selloff. The greenback refused to budge following a lower-than-expected consumer confidence print yesterday, nor for a -8.7% fall in home sales month-on-month, as markets focused firmly on interest rates being rethought upwards across the curve, as well as the haven demand driven by further negative news out of China and the uncertain global economic backdrop – investors are really keen to park their cash in the US right now. On the macro diary today is a speech from FOMC hawk Kashkari this afternoon, followed by durable goods orders. The real volatility triggers of the week begin tomorrow, as final GDP and unemployment claims kick off a string of influential economic data.

Markets

Asian shares traded within narrow ranges, and US equity futures showed a slight upward tick after experiencing losses on Wall Street the previous day, with the S&P 500 and Nasdaq 100 declining by 1.5%. These losses were driven by concerns about rising interest rates. European share futures remained stable, while a global equity measure hovered on the brink of its longest losing streak in over a decade. Oil prices rose by 1% following a two-week low. The increase was attributed to concerns about tight supply, which outweighed worries about the uncertain economic environment potentially affecting demand.

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

8:00 a.m.: Germany Oct. GfK Consumer Confidence
8:00 a.m.: Sweden Aug. Trade Balance
8:45 a.m.: France Sept. Consumer Confidence
9:00 a.m.: Sweden Sept. Economic Tendency Survey
1:00 p.m.: US MBA Mortgage Applications
2:30 p.m.: US Aug. Durable Goods Orders; Cap Goods Orders
6:00 p.m.: Russia Aug. Industrial Production
6:00 p.m.: Russia Aug. Retail Sales
6:45 p.m.: SNB’s Jordan speaks
French government unveils 2024 budget

Corporate Events

Earnings include H&M, Helvetia, Paychex

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