9 October 2023: Starmer has a “Grand Plan”


  • Labour promises “instant growth”
  • 336k new jobs created in September
  • Lagarde sees 2% inflation in the Eurozone. “It’s a case of when not if”
GBP – Market Commentary

Labour Party preparing for Government

The Opposition Labour Party began its annual conference yesterday with its leader, Sir Keir Starmer confident that its plans will see voters abandon the Conservatives and return the Party to power for the first time in more than a decade.

It is likely that one of the key battlegrounds will be the National Health Service which has seen waiting lists grow every year since the present Government took office.

Starmer said that he will pay for staff to work overtime and weekends to improve service provision, with the increased funding provided by the withdrawal of “non-dom status” status for tax purposes. This allows British people to not be taxed on any earnings they make abroad.

Rishi Sunak’s wife, Akshata Murthy, is a prominent holder of non-dom status.

Starmer went on to say in an interview yesterday that he is confident that economic growth during the Party’s first year in power will be such that two million appointments will be possible , although he did admit that his plans rely on the goodwill of NHS staff who still won’t have earnings comparable with the private sector.

The Labour leader is still not sure of having the backing of voters who say that the words and phrases, “nothing, don’t know and not sure” still best describe him.

His deputy, Angela Rayner, opened the conference with a speech in which she unveiled pains for the “biggest boost to social and affordable housing in a generation.”

The question stays and will continue to be asked even when Labour wins the Election, “have these plans been costed, and if that is the case why has funding plan not been made public.

Continued avoidance of the subject will make the public feel that Labour is indulging in “wishful thinking” in that increased economic growth will see unemployment benefit payments fall and taxation rise. This may be difficult to achieve with America now possibly facing a recession next year while the IMF has again downgraded its predicted level of global growth for the next three years.

The almost universal condemnation of the scrapping of the northern extension of HS2 continued over the weekend with even Conservative Backbenchers concerned of its erosion of the advances that the Party made in the last election.

Last week saw mixed reports on economic output released. While the Services PMI staged a significant recovery having fallen in August, Construction output fell into contraction for the first time since early Summer.

House prices continued their recent fall, with the Halifax index showing that prices fell by 4.7% year-on-year in September after a fall of 4.5% in August.

Manufacturing production data is due this week and despite a weak performance in August it is expected to show a healthy, 3.4% rise year-on-year.

The pound reversed its fall from the previous week but was unable to break through resistance that has built up around the 1.2260 level.

A week of volatility is expected as the situation is Gaza and Israel is expected to command the market’s attention.

USD – Market Commentary

Just what will happen when Israel retaliates?

The economy created a substantial number of new jobs in September, defying the market’s expectation of a slowdown and “flying in the face” of the rest of the weeks’ employment data.

There has been speculation over several months that the headline Non-Farm Payrolls will see a significant reaction to the Fed’s continued interest rate increases even though they have seen two pauses in the last three meetings.

336 new jobs were created in September, up from an upwardly revised 227k in August.

While there is weakness being seen in certain sectors, the data shows that overall, the economy is on solid ground. The prospect of a soft-landing remains, but the Fed is now more likely to hike rates at its next meeting, and now a lot depends on the September inflation report which is due on Thursday.

If the FOMC is truly driven by the data, which it says it is then, a hike should be considered a certainty.

The unemployment rate remained unchanged at 3.8% which is still extremely low historically and is an indicator of fundamental changes in the economy.

One of the other major drivers of the economy since the end of the Pandemic is the revolution that has been seen on the spending power of seniors, those over sixty-fives who have continued to work and therefore have more disposable income.

This may well prove to be temporary but is another factor that is being considered as contributing to the expected soft landing.

Last week was all about the jobs report, while this week will be dominated by inflation data. The expectation is for the headline to have to be around 3.2% as the oil price has stabilized and fallen a little, while the core may break 4%, but that is unlikely.

The FOMC decision will be on a knife-edge should the data be as expected, but with past monetary policy decisions still working their way through the economy, a further pause cannot be ruled out.

Last week the dollar index was mixed, reaching a high of 107.42 in the immediate aftermath of the jobs report, then settling back to end at 106.09 and the implications of the conflict in Israel, and this week’s inflation data saw long positions scaled back.

EUR – Market Commentary

Bankruptcies up, Unemployment down, another mystery!

The ECB is by far the most hawkish Central Bank in the G7 since there has been little sign of a pause to its interest rate hikes while both the Federal Reserve and Bank of England “paused” at their latest meetings.

Despite this hawkish stance by the Central Bank, the common currency has lost 5% of its value against the dollar since July.

This would point to the market losing interest in comparative interest rates and rekindling its concern over relative economic performance.

While it is possible that the U.S. economy will see a shallow recession some time over the next fifteen months, the market believes that the entire Eurozone will be in recession by the end of the year, following some of its members that are already experiencing economic contraction.

Christine Lagarde expressed her confidence last week that the ECB would meet its target of cutting inflation to 2%, but there were three important factors she ignored: First when will that happen, second will it require still tighter monetary policy and third is she confident that the region won’t suffer another energy crisis and winter draws on.

She provided hints about monetary policy in an interview with a French newspaper last week, saying that she believed that interest rates are now restrictive and that they will have to stay high for “some considerable time” but wouldn’t be drawn about any further hikes.

Her reticence runs contrary to her willingness to predict further hikes earlier in the year.

Data released last week showed a significant rise in insolvency and liquidation despite the employment data which shows that jobs are both plentiful and salaries are keeping up with inflation.

A wage price spiral has been going on for several months and until that is broken there will remain pressure within the Governing Council for further rate hikes.

Last week. The euro fell to its lowest level in almost twelve months reaching 1.0448, but it quickly recovered as the dollar lost ground, closing at 1.0586.

Have a great day!

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Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.