Morning Report

September 13, 2023

“Disappointing UK output data showed a decline in GDP of 0.5% in July from the previous month, forcing further downward pressure on Sterling. US CPI inflation this afternoon will be a key test of unwavering Dollar strength as the stage is set for the Federal Reserve’s interest rate decision next week.”

Sam Cornford, Partner – Head of Trading


Main Headlines

The US economy is projected to reduce carbon dioxide emissions by 35% to 43% from 2005 levels by 2030 as a consequence of the Inflation Reduction Act (IRA), according to a government report released on Tuesday. President Joe Biden’s IRA, implemented in August 2022, offers significant tax credits to promote the adoption of electric vehicles by consumers and the production of renewable energy by companies. The report from the Environmental Protection Agency (EPA) assessed the effects of approximately $391 billion in support provided under the IRA for climate and clean energy initiatives and incentives through 2031.

In July, Britain’s economy unexpectedly contracted at a significant rate due to strikes in healthcare and education, along with adverse weather conditions, as per official figures released on Wednesday. This development raises concerns about the economic outlook. According to the Office for National Statistics, gross domestic product (GDP) decreased by 0.5% in July compared to June, despite an anticipated 0.2% contraction. The health sector in particular, in part due to doctor strikes resulting in nearly 200,000 cancelled appointments, played a major role in the 0.5% decline in services output, according to the ONS.


Sterling has continued its slide this morning following a dovish repricing in response to yesterday’s labour market data. Disappointing GDP data has deepened the decline, as increased risks of recession hinder the BoE’s ability to keep interest rates elevated without causing excessive damage to the economy. UK macroeconomic data is beginning to slip into contraction – the bundle of output data this morning also included month-on-month declines – after previous month expansions – in construction output (-0.5%), industrial production (-0.7%), and manufacturing production (-0.8%), although these broadly printed as expected. The macro diary is light today, with only the Conference Board economic index due this afternoon.


The Euro has steadied this morning after an overnight rally supported by a hawkish shift in sentiment towards the ECB rate decision tomorrow. A leak last night indicated that the ECB’s updated forecasts will expect inflation to remain above 3% next year, boosting the case for a rise on Thursday. Trader bets are now leaning firmly towards a hike as the ECB begins its 2-day meeting today, with a difficult balancing act to be achieved between the opposing forces of sticky inflation and rising recession fears. Industrial production data is due later this morning, which is expected to fall into contractionary territory, in line with much of the other economic indicators coming out of the Eurozone.


The Dollar is broadly steady against most major currencies overnight, with trading subdued ahead of the key August CPI reading this afternoon. The preferred core measure, which omits volatile items such as food and energy, is forecast to decline further from 4.7% to 4.3%. However, headline consumer inflation is actually expected to tick upwards from 3.2% to 3.6%, primarily as a result of rising energy costs, which, if persistent, would be expected to bleed into the core measures over time. The macro data comes a week ahead of the Fed’s September monetary policy decision, with scope for significant volatility – a lighter-than-expected print would begin to slow the Dollar’s rally, whilst a higher figure would further unnerve risk sentiments and bolster the currency again. Other data points today include crude oil inventories and the federal budget balance.


Stocks dropped amid speculation that upcoming U.S. inflation data might reveal persistent price pressures, increasing concerns that policymakers will maintain higher interest rates for an extended period. In Europe, the Stoxx 600 index fell by 0.4%, while German bunds experienced a decline. In Asia, investors continued the selling trend observed on Wall Street, with China leading the way as mainland blue-chip stocks (CSI300) declined by approximately 1%.

Main Economic Data/Central Banks/Government (All Times CET)

10:00 a.m.: Italy 2Q Unemployment
10:00 a.m.: IEA publishes monthly Oil Market Report
11:00 a.m.: Euro-area July Industrial Production
12:00 p.m.: Swedish Party Leaders Debate in Parliament
2:00 p.m.: Poland July Trade Balance
2:30 p.m.: US Aug. CPI
6:00 p.m.: Russia WoW CPI
8:00 p.m.: US Aug. Budget Statement

Corporate Events

Earnings include Exor and Burford Capital


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