The Axiom IFS Update 23rd October 2023

British workers coming into the office every day outnumber those who spend part of the week working from home, for the first time since the end of pandemic restrictions. Less than a third of London’s white-collar employees are back in the office full time, the lowest level in the UK, the Hays report also showed.

 

Whilst much of the focus leading into last week had been on the UK’s labour market tightness and underlying inflation pressures, heading into the weekend the spotlight shifted onto the UK’s dimming growth outlook. Friday’s retail sales in particular painted a picture of an economy that continues to slow, a shift that significantly changes the context for tomorrow’s unemployment and PMI prints. Whilst markets continue to see the UK economy outperforming the eurozone, there is a chance that either weak PMI readings or a further climb in unemployment rate could see sterling under yet more pressure.

GBP.

The British Pound fell to its lowest levels in five months against the Euro last week, and unless UK PMI figures burn bright relative to those of the Eurozone, markets suggest the odds of any meaningful rebound remain limited. On the other hand should this week’s PMI figures beat expectations the currency could find redemption.

USD.

Geopolitical tensions continue to hang over international markets and have thus renewed investor interest in the safe-haven U.S. Dollar. Elsewhere, as the FOMC enters its blackout period, Fed Chair Jerome Powell and many Fed officials signalled that interest rates would be held steady at its November meeting. In fact, they signalled a desire to pause rate hikes and watch how economic data develops in the coming months.

EUR.

The Euro was relatively flat this morning following last week’s mixed trading patterns as investors wait for the ECB’s latest policy decision on Thursday. The market is poised for Frankfurt to leave rates unchanged in view of both softening economic activity and inflation. This would not be a surprise to the market and won’t impact Euro exchange rates; instead, it falls to the guidance issued by ECB President Christine Lagarde and the Governing Council to move the market.

CAD.

Last week’s events saw a week of choppy price action in USDCAD, with Friday’s price action a microcosm of these dynamics. Whilst the loonie found some initial support from oil prices, USDCAD still managed to finish flat on the day and up 0.4pp on the week as traders progressively priced out the odds of a further rate hike post Tuesdays CPI release, and events elsewhere in the world continued to drive market sentiment.

GOLD.

Gold prices held steady on Monday after hitting a five-month peak in the last session as investors looked forward to key U.S. economic data this week and kept a close watch on growing unrest in the Middle East. Gold prices hit their highest since mid-May on Friday and surged about 9% in the past two weeks as investors opted for the safety of bullion on fears that the Israel-Hamas war could escalate into a wider Middle East conflict.

STOCKS.

Stocks staged a broad retreat after the 10-year Treasury yield topped 5%, fuelling concern that soaring borrowing costs will erode economic growth. The yield on the 10 year jumped nine basis points to 5.01%, the highest since 2007. Europe’s Stoxx 600 index sank 0.8%, reaching the lowest intraday level since March. S&P 500 equity futures fell 0.6%. Copper, viewed as a benchmark for the global economy, tumbled to the lowest in nearly 11 months.

CRYPTO.

A Bitcoin rally fuelled by optimism about fresh demand from exchange-traded funds may have further to run if history is any guide. The largest digital asset posted a 9.8% jump in the seven days through Sunday — the biggest weekly advance since June — as traders bet on the possible approval in coming weeks of the first US ETFs investing directly in the token. In the past five years, weekly gains of at least that magnitude presaged a 10% average Bitcoin climb over the subsequent month, data compiled by Bloomberg show. The token rose nearly 4% to hit a peak of $30,977 as of 9:50 a.m. Monday in London.

OIL.

Oil was steady as talks over hostage releases were said to potentially delay a ground invasion of Gaza by Israel. Global benchmark Brent was little changed near $92 a barrel. Israel warned that Iran-backed Hezbollah risked dragging (https://www.bloomberg.com/news/articles/2023-10-22/israel-says-hezbollah-dragging-lebanon-toward-war-as-towns-empty) neighbouring Lebanon into the war even as it continued fierce air raids on Hamas in Gaza. More than 60,000 people in Israel have been evacuated along the border with Lebanon.

 

 

 

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