Morning Report

September 7, 2023

“BoE Governor Bailey surprised with encouragingly dovish comments at the Monetary Policy Committee hearing yesterday, with expectations rising that inflation will start to fall markedly towards the end of this year. Meanwhile, the Dollar continues its remarkable ascendancy as the US economy again proved to be an outlier in terms of resilience.”

Sam Cornford, Partner – Head of Trading


Main Headlines

On Wednesday, the U.S. Department of the Interior announced its intention to revoke oil and gas leases within a federal wildlife refuge that had been acquired by an Alaskan state development agency a few years ago. President Biden has made a commitment to safeguard the Arctic National Wildlife Refuge (ANWR), spanning 19.6 million acres (7.9 million hectares), to protect polar bears and caribou. Meanwhile, in Texas, the power grid operator has reported that it is returning to normal operations after lifting emergency measures. The Electric Reliability Council of Texas (ERCOT), which serves over 26 million customers, previously issued an Energy Emergency Alert Level 2 (EEA 2) due to dwindling operating reserves.

Mortgage lender Halifax reported on Thursday that British house prices have experienced their most significant decline since 2009 in the past year. This drop reflects the growing influence of elevated interest rates. According to Halifax, last month’s house prices were 4.6% lower compared to August 2022 when they reached near their highest point. In a separate report on Thursday, the City of London proposed the creation of a new council to drive significant economic growth of £225 billion ($281 billion) by 2030 and beyond through reforms in the UK’s financial sector. This initiative is a response to concerns about London’s global competitiveness, particularly following Brexit-related shifts in stock and derivatives trading and the relocation of senior bankers to the European continent.


Sterling is weaker than most major currencies in the early morning trade. It fell to its lowest level against the Dollar since mid-June as risk-off movements and dovish comments from the Monetary Policy Committee dampened the currency. Governor Bailey said that the BoE is much closer to its terminal rate and that he expects a marked fall in inflation by the end of the year, although it was noted that the economic data is giving some mixed signals. Despite gilt yields remaining static, the comments ground Sterling down amid revised market probabilities of peak rates. The UK macro diary is particularly light for the rest of the week and so, as markets digest the MPC’s hearing, most price movement is likely to be generated from other major currencies.


The Euro is stronger against Sterling and weaker against the Dollar this morning. Faltering Eurozone sentiment, coupled with overall Dollar strength, continues to weigh on the common currency. The market narrative showed no sign of reversing this morning, as we learned that German industrial production continued to fall by 0.8% this month, whilst the French trade deficit came in worse than expected at €8.1bn. Today, employment change and revised Q2 GDP figures are released which, if revised to the extent of the final PMIs earlier this week, could spark some Euro movement.


The Dollar continued its risk-off ascendancy against most major currencies overnight. The robust combination of strong US activity data, stubborn inflationary forces, and an increasingly cautious risk attitude continue to buoy the currency, pushing the Yen to a 10-month trough in spite of Japan’s intervention warnings. In stark contrast to Europe and China, yesterday’s ISM services PMI landed firmly in expansionary territory at 54.5 versus 52.5 expected, rendering new signals of sustained inflationary pressures that may give the Federal Reserve incentive to tighten further. Data highlights today include unemployment claims, oil and gas inventories, and several Fed speakers.


Stock prices declined as investors grew more confident in the expectation of ongoing inflationary pressures in the United States, which strengthened the argument for additional Federal Reserve actions to tighten monetary policy. Risk tolerance continued to diminish, causing both the Euro Stoxx 50 and the S&P 500 to drop by 0.7%. Meanwhile, European equity futures traded lower due to another decline in German industrial production in July, which further restrained the largest economy in Europe. The downward pressure on U.S. equity futures intensified as more information emerged regarding China’s intentions to prohibit iPhones from specific government departments, state-backed agencies, and corporations, dealing a blow to Apple Inc.

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

8:00 a.m.: Germany July Industrial Production
9:00 a.m.: ECB’s Wunsch and Holzmann speak in Brussels
9:00 a.m.: ECB’s Villeroy and Knot speak in Paris
10:00 a.m.: Italy July Retail Sales
10:30 a.m.: BOE releases August Decision Maker Panel survey
10:30 a.m.: ECB’s Elderson speaks
10:30 a.m.: Spain to sell bonds
10:50 a.m.: France to sell bonds
11:00 a.m.: Euro-Area 2Q GDP
11:00 a.m.: Sweden to sell linkers
11:30 a.m.: ECB’s Holzmann speaks
2:30 p.m.: US Jobless Claims, 2Q Nonfarm Productivity
4:00 p.m.: Fed’s Harker speaks
5:45 p.m.: Fed’s Goolsbee speaks
9:30 p.m.: Fed’s William speaks at Bloomberg Market Forum
9:45 p.m.: Fed’s Bostic speaks


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