Market news

The ongoing conflict in the Middle East had taken a relative back seat in financial markets as the knee-jerk move to safe haven assets at the start of last week fizzled out. But Friday’s market moves were typical of investors again taking cover over the weekend with gold and oil well bid, along with defensive currencies like the Swiss franc and Japanese yen. This kind of price action could become typical of what see over the next few weeks depending on the headlines and news in Israel.

The situation clearly remains too volatile for any type of prediction on the long-term market impact. But a cautious stance should be expected with those haven currencies in demand, while more upside pressure on commodities and crude will underpin support for the dollar. Easing demand and spare production capacity in Saudi Arabia have seen oil markets remain relatively calm so far until Friday’s 5% surge. Any involvement of the Iran-backed Hezbollah is a key risk, though it appears that many of the surrounding nations have pushed to avoid any further escalation so far.

Regarding markets, central bankers have sounded increasingly cautious about hiking rates further as financial conditions have tightened a lot since the summer. Indeed, the meeting minutes from both the ECB and Fed last week highlighted increasing concerns about the risk of overtightening monetary policy. It will be interesting to see if this narrative of higher rates doing some of the Fed’s heavy lifting carries on, especially after the US CPI data showed some hotspots in price trends like services which policymakers focus on. Otherwise, US data this week like retail sales may show signs of weakness and hint at a consumer who has used up much of its pandemic savings.

Elsewhere, GBP traders should focus on the latest inflation and employment report. There is still around a 35% chance of a 25bp rate hike priced in by money markets by year end. Wage growth remains a major worry for the MPC so another strong set of data, backed up by sticky inflation, could move the dial towards a rate rise at its November meeting. China also gets it regular mid-month data deluge with GDP, retail sales, industrial production, and fixed asset investment figures for September. Should these releases support the view that the Chinese economy has found a trough and is stabilising, then correlated currencies like the AUD and NZD may find some much-needed support in the current risk averse environment.

Finally, Q3 earnings results heat up with more big US investment bank reporting as well as Tesla and Netflix. Focus will be on the EV-maker’s margins as the price war continues. Revenue is expected to fall modestly from Q2 to $24.6bn while profit is forecast to come in at $0.77 a share. The streaming industry is having to contend with the impact of the writers and actors strike. Netflix expects revenue of $8.5bn and a similar rise in new subscribers to the previous quarter. Profit is predicted to hit $3.52 a share.

Major data releases of the week:

17 October 2023, Tuesday

–UK Jobs: The unemployment rate in August is seen steady at 4.3%. The BoE will be focused on earnings with consensus expecting 7.8% from 8.5% in July. The job market is clearly beginning to cool, and this should see a gradual fall in wage growth.

–US Retail Sales: Expectations are for a fall to 0.3% in September from 0.6%. Spending is likely to be soft excluding vehicle sales and gasoline. There is growing evidence that household savings are being run down and disposable income is shrinking.

18 October 2023, Wednesday

-China Data: Q3 GDP is forecast to slide to 4.5% from 6.3% and retail sales to 6.7% from 7.0% in August. Holiday spending and favourable base effects should underpin support. Industrial production could follow the recent better than expected PMI figures.

-UK CPI: The headline figure is forecast to fall to 6.2% from 6.7% in August. Services inflation is the key metric for the MPC and likely to fall from 6.8%. Lower gas and electric prices should work through with a lag.

19 October 2023, Thursday

–Australian Jobs: Consensus predicts 20,000 job gains after the blockbuster 64,900 print in August. Those were mostly part-time jobs which suggests some will convert to full-time, turning part-time employment negative. The jobless rate is seen unchanged at 3.7%.

20 October 2023, Friday

–UK Retail Sales: Inflation is easing and wages remain elevated so the effects on consumer spending (the “pass-though”) is expected to be limited for now. Sales partially recovered in August, rising 0.4% after a rainy July washout saw volumes fall 1.1%.