Morning Report

September 29, 2023

“The bulldozing dollar rally that began with an ultra-hawkish Fed pause last week took a breather yesterday, as the euro and sterling staged corrective comebacks. G10 volatility can be expected to persist today with key eurozone and US inflation data.”

Sam Cornford – Head of Trading


Main Headlines

The Biden administration’s five-year plan for offshore oil and gas leasing is expected to exclude any sales in 2024 and will feature just three auctions in the final four years. This represents the lowest number of auctions in the history of the program, according to sources familiar with the matter. In other US news, positive sentiment has been generated by a Wall Street Journal report indicating that China’s Vice Premier He Lifeng and Foreign Minister Wang Yi are in discussions regarding possible visits to the United States, with the aim of preparing for a potential summit between Chinese President Xi Jinping and US President Joe Biden.

In the UK, revised official data from the Office for National Statistics has indicated that Britain’s economic performance since the beginning of the COVID-19 pandemic has been stronger than previously thought. In the second quarter of 2023, the UK economy was reported to be 1.8% larger than in the final quarter of 2019, which was the last full quarter before the onset of the pandemic. This revision contrasts with the ONS’s previous estimate on August 11, which suggested that the economy was still 0.2% smaller than its pre-pandemic size, placing it at the bottom of the list among major advanced economies.


A corrective sterling rally that began yesterday has the pound trading flat on the week, as surging UK gilt yields lent support through narrowing UK-US rate spreads. It is still set to lose more than 3% this month, however. The British economic data drought came to an end with some positive news this morning, as GDP growth in Q2 was revised up from 0.4% to 0.6% compared to the year before, providing sterling with a further boost. The inflation-adjusted value of business investment was also revised up from a 3.2% increase to 4.1%. The short-term rally will be further tested by mortgage approvals and consumer lending data this morning.


The euro’s rebound was somewhat weaker as concerns about the Italian fiscal deficit weighed on eurozone sentiment. Italian BTP bonds sold off yesterday and the 10-year spread to German Bunds rose to 200bps after the Italian government raised the projected 2023 fiscal deficit from 4.5% to 5.3%. German CPI fell slightly more than expected, but the market reaction was muted as it failed to budge the ECB’s higher-for-longer outlook. French CPI earlier this morning ticked up as a result of rising energy prices, but this was also no surprise. Eurozone CPI and core CPI follow this morning, but it seems clear now that the euro has become somewhat less data-sensitive now that the near-term rates outlook is fairly stable.


This week’s monster dollar rally came to a swift halt yesterday, but the greenback remains up more than 2% this quarter. Treasury yields fell from their multi-year highs overnight and oil prices took a breather as investors attempted a brief risk on rally. Yesterday, US final Q2 GDP growth was revised down slightly to 2.1%, and unemployment claims printed less than expected at a stable 204,000. Later in the day, Fed Chair Powell’s speech failed to generate any price action as he steered away from monetary policy topics. A data heavy week continues today with PCE inflation and consumer sentiment, which markets will closely eye as they weigh the prospects of one further rate hike this year. Next week, however, a looming government shutdown could threaten economic releases and create huge uncertainty for markets and for a data dependent Federal Reserve.


Stocks saw gains on the final trading day of the quarter, with optimism stemming from increased spending anticipated during China’s Golden Week holiday and reports of potential talks between US and Chinese leaders. Hong Kong shares led the rise in Asian equities, and benchmarks also advanced in Australia and New Zealand. However, mainland Chinese markets were closed for a holiday that extends into the following week.

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

8:00 a.m.: UK 2Q GDP
8:45 a.m.: France Sept. CPI, PPI
9:00 a.m.: Riksbank’s Floden speaks
9:00 a.m.: Czech Republic 2Q GDP
9:00 a.m.: Turkey Aug. Trade Balance
9:40 a.m.: ECB’s Lagarde speaks
9:55 a.m.: Germany Sept. Unemployment Chance
10:00 a.m.: Poland Sept. CPI
10:30 a.m.: UK Aug. Mortgage Approvals
10:30 a.m.: Portugal Sept. CPI
10:45 a.m.: ECB’s Vasle, Vujcic speak
11:00 a.m.: Euro-area Sept. CPI
11:00 a.m.: Italy Sept. CPI
11:00 a.m.: ECB’s Kazaks speaks
11:00 a.m.: ECB’s Visco speaks
2:30 p.m.: US Aug. PCE Deflator; Personal Income; Personal Spending
3:45 p.m.: US Sept. MNI Chicago PMI
4:00 p.m.: US Sept. University of Michigan Sentiment
6:45 p.m.: Fed’s Williams speaks


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