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[HFM.]

Date: 25th October 2024.

UK Debt Set To Rise: How Will the GBP React?

• The UK Chancellor looks to change Fiscal Policy in order to allow the UK to borrow 70 million GBP more.
• The IMF increases its forecast for the UK economy to recover this year from 0.7% to 1.1%. UK PMI data underachieved on Thursday.
• The NASDAQ increases 0.55% as Tesla’s latest earnings data increase shareholder sentiment.
• The US Dollar Index retraces after increasing in value for 4 consecutive weeks.

GBPUSD – UK To Change Fiscal Policy To Increase Debt Levels!

The GBPUSD exchange rate trades slightly lower during this morning’s asian session but looks to be regaining momentum. In addition to this, the GBPUSD continues to remain below most Moving Averages despite the upward price movement on Thursday. The downward price movement on Thursday was largely due to a decline in the US Dollar and not necessarily the Pound strengthening. For this week, the British Pound has fallen 0.65% against the currency market and traders will closely watch the Pound’s reaction to the UK’s Autumn budget.



The US Dollar is the best performing currency of the past 7 days and is the best performing of the day so far. The US Dollar continues to be supported by significant economic data. This includes the Weekly Unemployment Claims which fell to 227,000, New Home Sales rising to 738,000 and Flash PMI data reading slightly higher than previous expectations.

The Beige Book made public yesterday indicates that economic activity remained steady in September 2024. However, companies reported a modest uptick in hiring, a general easing of inflation pressures, and input costs rising faster than sales prices, which impacted business profitability. Lastly, the Federal Reserve continues to support the US Dollar as the market predicts a 0.25% rate cut.

The Bank of England on the other hand are likely to cut interest rates at the next meeting but it is not clear whether the BoE will cut 0.25% or 0.50%. Meanwhile, investors are watching the Autumn budget set for October 30th with a close eye. The UK Chancellor is looking to change Fiscal Policy in order to allow the UK to borrow 70 million GBP more. This could be a challenge and if global investors are not comfortable with the risk, this could pressure the Pound. This is something also previously seen under the Truss administration, but economists do not expect such a sharp nosedive. Lastly, yesterday’s UK PMI data for both the Services and Manufacturing sectors fell lower than the previous month and lower than current expectations.

However, if the price of the GBPUSD continues to decline, where does technical analysis point to a trigger point? As the price retraces back to the previous swing high, traders will look for the price to regain momentum before speculating a decline. The latest bullish swing measures 0.14%. Therefore if the price falls below 1.29618, investors will consider the momentum an opportunity. This will also push the price back below the 200-bar SMA on the 5-Minute Chart.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HFM Economic calendar.

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Michalis Efthymiou
HFMarkets

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

 

[HFM.]

Date: 28th October 2024.

Elections Have Consequences: Market Impacts and Economic Outlook.


The world will be on tenterhooks during the two most consequential weeks of the year, and probably for the foreseeable future. The US election looms large and the outcome, including the House and Senate results, will have wide-ranging consequences. But the race remains too close to call which will keep the market nervous.

US data will be closely monitored too with the crucial jobs report ahead. Japan is coming off of Sunday’s election where there is risk the LDP could lose its majority. The BoJ is also due to meet but no policy changes are seen. In the UK, anxieties over another possible “Truss moment” have weighed ahead of the autumn budget report. Eurozone data is likely to provide ammo for ECB doves and hawks alike, to heighten uncertainties over the ECB’s December stance.

US Election Insights​

The November 5 election draws ever nearer and is the focal point. The markets are increasingly nervous over the hotly contested outcome that remains a dead heat — Trump or Harris, and whether there is a clean sweep or a divided Congress. Over the recent weeks attention on the election has pushed data to the background. However, the upcoming October jobs report and major earnings releases are set to capture attention. It is a week of important data, and though the numbers will be mostly lost in the election headlights, they will help set outlooks on the economy and inflation as the FOMC calibrates policy.

This week’s data calendar features:

• October Nonfarm Payroll Report (Friday)
• Advance Q3 GDP (Wednesday)
• Q3 Employment Cost Index (Thursday)
• Job Openings and Labor Turnover Survey (Tuesday)
• Personal Income and Consumption Data (Thursday)

The job report is anticipated to show a 140k increase in payrolls, a slowdown from September’s 254k surge. The unemployment rate is expected to hold steady at 4.1%. Q3 GDP growth is projected at 3.2%, up from 3.0% in Q2.

Tech Earnings, Treasury Supply Challenges and Market Reactions​

Major earnings reports will fight for attention too. Additionally, the Treasury will sell a record volume of bills and coupons and announce quarterly borrowings and the refunding auctions. Fedspeak is the only thing not on the slate as it goes dark into next week’s FOMC meeting.

Several big tech earnings reports will dominate a heavy calendar including 5 of the “Magnificent 7.” Those include Google and AMD (Tuesday), Meta and Microsoft (Wednesday), Apple, Amazon, and Intel (Thursday). There will be keen interest in the impacts of AI and capex spending. The NASDAQ climbed 0.56% to a new record high Friday after further strong gains on Tesla. Meanwhile, the S&P 500 is down from its 47th record peak of 5864 from October 18. The -0.96% decline on the week broke 6 consecutive weeks of gains. And the index just broke a record that dated back to the 1950s where it went 31 sessions without back-to-back losses. So far this earnings season, 35% of the S&P has reported, with 79% beating profit estimates and 58% beating on revenues.

The US Treasury is set to auction a record $663 billion in notes, which could pose challenges for the bond market. The increased supply may lead to higher yields, as the market adjusts to the influx of debt.

The debt managers have already announced $183 bln in 2-, 5-,and 7-year notes, condensed into Monday and Tuesday. This includes $69 bln in 2s and $70 bln in 5s on Monday. Both remain at record levels. Typically the doubling up of auctions is detrimental to both. The $44 bln in 7-year notes is on tap Tuesday, along with the $30 bln 2-year FRN. The market cheapened slightly on Friday, leaving yields near multi-month highs. The 2-year was up 2 bps at 4.097% as the 4.10% made for a solid ceiling and is likely to be threatened this week. The rate held the 4-handle all of last week. The 5- and 7-year rates were up 3 bps to 4.065% and 4.145%, respectively.

Europe Updates​

ECB President Lagarde still did her best to deliver a cautious cut on October 17, but the doves have been out in force since then to demand that the option of a 50 bp move be put on the table at the December meeting. At the moment, it doesn’t look as though there was a majority in favor of a jumbo cut, but with the risks to the growth outlook tilted to the downside, some are eager to bring rates to neutral as soon as possible. Whether rates will have to go below neutral remains to be seen and will also depend on geopolitical developments.

Data releases this week are likely to give both the hawks and the doves something to argue with. Preliminary GDP estimates for the third quarter are due, and data for Germany are likely to confirm that the Eurozone’s largest economy is back in recession. We expect German GDP to have contracted -0.1% q/q (median same) in the third quarter, after a similar contraction in the second quarter of the year. French GDP, however, is set to have risen another 0.2% and Spain is likely to have outperformed once again with growth of 0.6% q/q. Against that background, overall Eurozone GDP growth is set to have held steady at 0.2% q/q (median same).

Confidence data has been mixed so far, and while PMI reports disappointed, the German Ifo reading came in much better than expected. With that in mind, we expect the ESI Economic Confidence reading to nudge up to 96.4 (median 96.3) from 96.2 in the previous month. The labor market has also started to register the uncertain growth outlook and the German seasonally adjusted jobless number is expected to have risen a further 13K (median 15K), which should lift the sa unemployment rate to 6.1% (median same) from 6.0% in September. This is still low by German standards, but will help to keep a lid on wage growth down the line.

Headline inflation, meanwhile, dropped sharply in September and is likely to back up again with the preliminary CPI number for October. Base effects from energy prices and government support schemes have been the main reason for the variations in recent months, and the focus for the ECB and markets remains on core and services price numbers. Those remain far above the ECB’s 2% target, but further confirmation that services price inflation in particular has peaked would add to the arguments in favor of further rate cuts.

The data calendar also has German import prices, and retail sales, as well as additional national CPI and GDP numbers. There are a number of ECB speakers, including Schnabel and Nagel, who are on the hawkish side of the spectrum.

UK Economic Outlook​

As the autumn budget approaches on October 30, uncertainty looms over fiscal policies following past budget mishaps. Following the experience with Truss’ disastrous budget, markets are understandably nervous. Chancellor Reeves has flagged a large hole in this year’s finances that she is unlikely to fill with tax hikes alone. That means higher debt targets and leaves some risk of market volatility around the budget presentation.

Key data releases meanwhile are thin on the ground. The BoE is set to release money supply and lending data early in the week. The final Manufacturing PMI meanwhile is expected to be confirmed at 50.3, which essentially signals stagnation, rather than real expansion across the manufacturing sector.

The coming weeks are critical for economic direction in the US and beyond. The outcomes of the election and major economic reports will set the tone for market reactions and policy adjustments moving forward.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HFM Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
HFMarkets

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.