Economic Update

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Economic Update

A plethora of PMIS

7 minute read

20 November 2023

GBP

It was a busy week for UK politics as Rishi Sunak began his cabinet reshuffle last Monday ahead of the UK’s next general election, which is expected to take place no later than January 2025. Former Foreign Secretary James Cleverly replaced Suella Braverman, and more surprisingly, it was a return to government for former Prime Minister David Cameron, replacing Cleverly as the new Foreign Secretary.

The UK’s CPI Inflation data was released on Wednesday, posting the lowest level in 2 years. Headline inflation fell from 6.7% in September to 4.6% in the twelve months to October, representing the most significant inflationary slowdown since 1992. The figures came in below market expectations, which forecast a reading of 4.8%.

UK retail sales fell by 0.3% during October. Forecasts had anticipated a return to growth last month after negative readings in the total value of inflation-adjusted retail sales for the three previous months. The surprise here was Sterling’s resilience to this underwhelming data, especially in comparison to the USD and its CPI figures.

This week is relatively light with respect to UK market events, with BoE Gov Bailey speaking at 6:45pm today, the UK’s autumn statement on Wednesday, and Flash Manufacturing and Services PMIs out for the UK 9:30am on Thursday.

EUR

The Euro benefited from a light data week, seeing it gain over 2% against the Dollar in the last week, with the only data of note being Flash Eurozone GDP and employment change. The European Union’s statistics office, Eurostat, reported the collective GDP of the 20 countries sharing the Euro fell 0.1% between July and September compared to the previous quarter.

However, there was better news for the EU concerning employment, which rose by 0.3% in the same period. This contributed to an overall 1.4% year-on-year growth in employment across the region. A slump in growth is often reflected in a similarly negative trend in employment. However, the data seems to point to more resilience in the labour market than would perhaps be expected.

This week is slightly more data-heavy for the Euro, with the ECB Financial Stability Review at 9am Wednesday, French and German PMI figures on Thursday at 8:15am and 8:30am, respectively, and German IFO Business Climate at 9:00am Friday. ECB President Lagarde will also be speaking throughout the week, which may add to any potential volatility.

USD

GBPUSD has moved back to near 2-month highs this morning following the Dollar’s negative trend from last week as markets have moved against the belief the Fed will stick to its rhetoric of ‘higher for longer’. Following this, we saw US treasury yields hit 2-month lows, leading to their steepest weekly decline since Silicon Valley Bank filed for bankruptcy in March.

The trigger for this was softer job figures and CPI. As mentioned last week, we saw US CPI reported (on a year-on-year basis) at 3.2%, which was slightly lower than forecasted, and the month-on-month figure came in flat at 0.0%. We also had an update from Walmart’s CEO, Doug McMillon, who said that he thinks we could see deflation in the next few months. The markets are currently pricing in as much as 100bps of rate cuts from the Fed next year.

Some potentially volatile data events for the Dollar this week as FOMC Meeting Minutes come out Tuesday evening at 7:00pm, followed by Unemployment claims and Revised University of Michigan Consumer Sentiment at 1:30pm and 3:00pm, respectively, on Wednesday, and finally, the US rounding off this week’s Manufacturing and Services PMI data at 2:45pm on Friday.

Author

Louis Kolliari - Corporate Dealer

This commentary does not constitute financial advice and all quoted rates are sourced from Bloomberg.

 

 

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