Good morning,
England’s hopes of World Cup glory have been dashed yet again, but this time it wasn’t in Qatar—it was at the Subbuteo World Cup in Tunbridge Wells. As the birthplace of the classic tabletop game, the stakes were high, but Christian Filippella of the USA claimed the main prize, leaving England empty-handed. It was up to veteran Bob Varney to salvage national pride in the senior tournament, with a nail-biting sudden-death goal that sent his miniature teammates—and the crowd—into raptures. Though the main trophy may not have “come home,” the spirit of Subbuteo certainly did.
Last Week
Sterling’s impressive rally shows no signs of slowing, bolstered by resilient economic data and cautious rate moves by the Bank of England. The pound hit a new high of 1.3340 against the dollar last week, its highest since 2022, buoyed by upbeat retail sales and positive signals from the Bank. Investment banks like Goldman Sachs are optimistic, predicting a rise to $1.40 in the next 12 months. UK Chancellor Rachel Reeves, aiming to counter criticism of downplaying the economy, assured “no return to austerity” at the Labour party conference, boosting hopes for a more positive economic outlook. On a trade-weighted basis, sterling is at its highest level since the 2016 Brexit vote, just 2% shy of its pre-referendum position.
European PMIs have painted a grim picture for the single market, with France and Germany struggling significantly. France’s services PMI plummeted from 55 in August to 48.3, with some attributing the drop to a post-Olympics slump. Germany’s issues are even more pressing; its economy is forecasted to contract by 0.1% in 2024, making it the only major economy expected to shrink. Economists fear these challenges are structural rather than cyclical. Deutsche Bank now expects a “faster normalisation” of ECB policy, anticipating quicker rate cuts to offset weakening economic activity. This shift may put further pressure on the euro, which is already struggling against a backdrop of negative growth prospects and uncertainty over the ECB’s ability to sustain stability in the region.
The global economy got a welcome lift last week as Saudi Arabia signalled it was ready to abandon its unofficial $100-a-barrel price target for crude, preparing to increase output. This shift saw Brent crude prices tumble by 4%, hitting near two-year lows. The move comes after the Opec+ group, led by Saudi Arabia, postponed unwinding production cuts, sparking speculation over their willingness to boost supply. Lower oil prices should help keep inflation on a downward trend, providing room for central banks to continue rate cuts to spur growth. With Brent briefly falling below $70—a level not seen since December 2021—hopes are rising that easing energy costs could offer a timely boost to economic momentum worldwide.
This Week
Investors are watching closely to see if the Federal Reserve will deliver a back-to-back 50bps rate cut, following last week’s decision to slash rates by 50bps. Fed funds futures currently price in a 50% chance of another double cut in November, but key incoming data could shift those odds. The ISM manufacturing and non-manufacturing PMIs, due Tuesday and Thursday, will offer early insights into the health of the US economy, followed by Friday’s nonfarm payrolls report. Expectations are modest—145k new jobs in September and steady unemployment at 4.2%—but any positive surprise could bolster the dollar and prompt investors to rethink whether another significant rate cut is needed. Wall Street might also welcome strong data, signalling resilience in the US economy.
All eyes in the Eurozone will be on September’s preliminary CPI data, due Tuesday, as it could determine the course of ECB policy. Despite no clear signals for an October rate cut, disappointing PMIs have led markets to price in a 75% chance of a 25bps reduction at the October 17 meeting. However, a Reuters report suggests a split within the ECB, with doves pushing for cuts amid weak data and hawks arguing for a pause. A compromise may involve holding rates steady until December if inflation doesn’t ease further. The base case remains cuts in both October and December, and softer CPI figures could reinforce this view. If US data supports a less dovish Fed, euro/dollar may extend its decline, potentially slipping below 1.1000.
Key events
Monday 30th September
11:30 Chinese PMI’s
Tuesday 1st October
03:55 US Fed Chair Powell Speaks
19:00 EUR CPI estimate
Wednesday 2nd October
00:00 US Manufacturing PMIs
22:15 US non farm employment Change
Thursday 3rd October
16:30 Swiss CPIs
22:30 US unemployment Claims
Friday 4th October
00:00 US Services PMI’s
22:30 US Unemployment Rate
Have a great week,
The Garton Team.