Sovereign International Daily Market Report
Oil prices retreat despite mounting Middle East tension
Investors have taken a breather in the past few days, with the major currencies largely trading sidewides following a hectic week of geopolitical and economic news.
Highlights:
The US dollar continued to trade around its strongest position in nearly two months against its major peers on Tuesday, having last week posted its best week since September 2022. Markets are now convinced that the Fed will slow the pace of its easing cycle next month and revert to a ‘standard’ 25bp cut. FOMC member Williams said as much during his remarks yesterday, indicating that 50bp moves would not be the norm.
Meanwhile, commodity currencies were on the back foot following a sharp correction in crude oil prices. Brent crude fell back to $77 a barrel yesterday from $81 a barrel on Monday despite mounting concerns over the Middle East crisis. According to reports, Israel is now coordinating with the US on a retaliation against Iran, although expectations for a supply glut in 2025 are keeping prices suppressed.
Attention today will be on this evening’s FOMC meeting minutes, which will be followed by the September US CPI report on Thursday afternoon.
USD
This evening’s FOMC meeting minutes may be largely overlooked by currency traders given their datedness, particularly as last week’s stellar payrolls report has made them more-or-less redundant. Tomorrow’s inflation report for September is much more likely to shift currency markets this week. Economists are eyeing a drop in the main inflation rate to 2.3% (from 2.5%), just above the Fed’s 2% target, with core set to remain unchanged at 3.2%.
With a 50bp move now off the table for the Fed’s November meeting, investors may be asking the question as to whether even a standard cut next month will be strictly necessary. We suspect that even a big miss in today’s data won’t be enough to derail a November cut, but clearly it could trigger a retracement in the dollar in the second half of the week.
EUR
Communications from European Central Bank officials continue to point to the high likelihood of another rate reduction when the Governing Council meets next Thursday. ECB member Villeroy said this week that the bank would ‘quite probably’ cut rates this month, while fellow member Kazak has noted that recent economic data points to an October rate reduction. While Kazak is one of the more dovish members on the rate-setting council, Villeroy is not, which would perhaps point to a broader consensus in favour of more easing.
Revised September inflation figures aside, there won’t be any tier-1 economic data out of the common bloc between now and next Thursday’s meeting, so we see little standing in the way of another cut, which is now more than fully priced in by swap markets. The key will instead likely be the tone of the bank’s communications and signs of any increased dissent among council members.
GBP
The pound has failed to bounce back following last week’s surprisingly dovish remarks from Bank of England governor Bailey, with the GBP/USD exchange rate hovering around its lowest level in three weeks on Tuesday. Recent UK economic data has been somewhat disappointing, but sterling bulls will be hoping for a reversal in this trend when the August GDP print is released on Friday morning. Economists are pencilling in a modest rebound of 0.2% MoM, which could be slightly conservative if the August PMI numbers are anything to go by.
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Investors will also have one eye on the upcoming Labour budget announcement, which is due to take place on 30th October. The Confederation of British Industry warned on Tuesday that new chancellor Rachel Reeves would need to strike an upbeat note to give businesses the confidence to invest. This may not be enough to provide any real support the pound, however, particularly should she unveil a wider range of tax hikes than the market is currently pricing in.
Economic Calendar – 02/10/2024-04/10/2024
Wednesday (09/10)
Thursday (10/10)
Friday (11/10)
Sunday (13/10)
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5 个月Aren't we over analyzing a bit? And haven't we killed our economy yet? If we are calculating CPI'S utilizing data that excludes nonlinear changes or extreme values from some mean.... and if we do this year in and year out.... do we miss real inflation? Since coming off the gold standard in 1971, a home, a car cost $14,000 and $1,200 respectively. Today that home, that car costs $1.5 Million and $60,000. Did we miss something here? Our federal government seems to be mired in debt, ... our families are working two, three jobs OR MORE... up from one job, one male ... Our corporations are mired in debt.... Our local governments, state governments... all mired in debt... what gives? Could our federal reserve,... together with a media that is owned by but a handful of men.... be deceiving us? Is data that is so over-scrutinized on the one hand... and flagrantly omitted on the other hand.... a real measure of anything? I still pay four times the amount that i did at the grocery store than twenty-five years ago JOIN ME MARK applied physics https://www.academia.edu/120841965/LETTER_OF_INVITATION