Market Report - 09/11/2023
Equity markets improve ; Markets await UK GDP data
Following a rise in global stocks and equity markets, analysts are now forecasting a strong finish to the year for the GBP. After a sluggish start to the week, the global equity market has improved. In the US, Wall Street is seeing more restrained activity, although European markets have made significant gains.
Since the pound is highly correlated with risk-sensitive currencies; the dollar, yen, franc, and, to a lesser extent, the euro—any increase in global equity markets may frequently be seen in the pound's performance versus these safe-haven currencies.
Looking at some of the major GBP pairs, the outlook remains dependent on how market expectations for future Bank of England interest rates progress and whether the market 'prices in' further rate cuts over the coming weeks. As well as that, tomorrows all important GDP figures for the UK are set to be released at 7am – this print is also expected to give further clarity over the short term direction for the pound.
Yesterday, following speeches from Bank of England Governor Bailey and Huw Pill, UK government bonds rallied. The reason being this was that the Governor re-emphasized ‘it is still far too early to discuss rate cuts’, however he did not rule out the possibility of cuts after Q2 of 2024, saying that would not be ‘unreasonable’.
GBP rallied versus the EUR last week after the MPC took a stance of ‘higher for longer’ in regards to the bank rate, and delivered what markets described as a hawkish pause. Since then, the rate has retreated slightly, currently sitting just above the support level of 1.1470.
Looking at GBP/USD – the rate remains to trade relatively rangebound between two key support and resistance levels (1.2200 and 1.2300) as investors seem unwilling to implement fresh positions prior to the release of UK Q3 GDP data. This GDP report is likely to shape the monetary policy outlook of the Bank of England (BOE) for December. An overall decline in the housing market, as well as poor services PMI (services being the main export of the UK) and worsening employment levels set an extremely negative tone for July-September period
The US Dollar index has been navigating in a consolidative range around the 105.50 level this morning ahead of the Fed Chair, Jerome Powell’s speech in Washington amidst a backdrop of contrasting views on US Monetary Policy.
In the US, there is significant debate over a soft or hard landing for the US Economy and how quickly they look to taper interest rates. Current speculation suggests a high chance the US could begin tapering interest rates early in 2024.
The US Dollar is currently experiencing significant safe-haven support from the geopolitical turmoil, with a chance the ongoing conflicts could quickly spread to other regions this could continue for some time. Alongside Powell’s speech, we also have initial jobless claims out of the US today which gives us a good insight into the state of the US Jobs Market.