April 14, 2023

“The euro continued to gain strength yesterday, supported by growing expectations of higher interest rates in the Eurozone. In contrast, the US dollar weakened and reached a one-year low against a basket of currencies on Friday amid speculation of a pause in the Federal Reserve’s rate hikes due to cooling inflation.”

Tim Hallinan – Trading Director

Main Headlines

Equity markets saw a rally and the US dollar dipped further this morning, following new data showing a continued slowdown in inflation. The unexpected drop in producer prices in March, the largest since April 2020, came after a decline in the consumer price index the previous day, indicating that the Federal Reserve’s campaign of interest rate hikes may be showing results. Additionally, a higher-than-expected reading on jobless claims further boosted the positive sentiment, leading to gains in Wall Street’s main indexes.

Britain’s Chancellor, Jeremy Hunt, stated that the government needed to consider raising the level of protection for bank customers due to the rapid withdrawal of deposits from Silicon Valley Bank last month. Hunt echoed comments by the governor of the Bank of England, Andrew Bailey, who had called for a review of the deposit insurance scheme. Hunt expressed willingness to raise the limit if recommended by regulators, but noted that it would require an immediate call on public funds as there was no reserve of money for quick deposit repayment, unlike the United States.

GBP

Sterling is weaker than most major currencies in the early morning trade. An increasing number of UK lenders are experiencing a rise in loan defaults from households and companies, as borrowers face the impact of rising interest rates. Concerns have been raised by estate agents and tourism groups over the UK government’s plan to crack down on second-home owners renting properties in England, as it may hurt local economies without addressing the issue of housing supply. Housing secretary Michael Gove has proposed giving local councils the power to require planning permission for converting existing homes into short-term rental properties.

EUR

Euro is well bid against most major currencies this morning. France’s Constitutional Council is expected to rule on President Emmanuel Macron’s plan to raise the retirement age, a significant moment for a controversial overhaul that has sparked mass protests. The outcomes could range from wholesale rejection (least likely) to full approval, censure of some elements, or approval of a referendum procedure that would prolong the process. Meanwhile, there are increasing calls from various European Central Bank policymakers for more action and a possible increase of 25 or 50 basis points when they meet on May 4.

USD

The dollar is stronger against sterling and weaker against euro this morning. The largest US lenders, including JPMorgan, Citi, and Wells Fargo, are set to kick off the earnings season, with concerns around deposits being a major issue for the banks in the first quarter, particularly in March, according to Wells Fargo’s Mike Mayo. Additionally, trading revenue for the five biggest Wall Street banks may have dropped by 10% to $29.9 billion, despite recent volatility in the financial sector. In Florida, the Republican-led House of Representatives has approved a six-week abortion ban, which could significantly curtail abortion access in the state and the US South.

Markets

European stocks edged higher on Friday, set for their longest weekly gaining streak since early December on speculation the Federal Reserve and other central banks are nearing the end of their hiking cycles. The dollar extended declines. The Stoxx 600 added 0.2% by 8:06 a.m. in London. The benchmark index is now set for a fourth straight week of gains, its longest since Dec. 2. MSCI Inc.’s World Index rose for a second day, headed for its highest close in 10 weeks.

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

8:00 a.m.: Sweden March CPI
8:45 a.m. France March CPI
9:00 a.m.: Spain March CPI
10:00 a.m.: Poland March CPI
3:15 p.m.: US March Industrial Production
5:30 p.m.: BOE’s Tenreyro speaks
7:00 p.m.: Baker Hughes US rig count
8:15 p.m.: ECB’s Nagel speaks
France’s Constitutional Council Reviews Macron’s pension reform plan

Corporate Events

Earnings include JPMorgan, Wells Fargo, Citi, BlackRock

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.