April 17, 2023

“The US dollar strengthened in afternoon trading on Friday, driven by comments from Fed member Waller and strong earnings from Wall Street banks. This has increased market expectations for a potential interest rate hike by the US Federal Reserve in May. In the upcoming week, a key focus will be on UK CPI and the flash readings of the April PMI from the US, Eurozone, and UK, as these will be closely scrutinized to gauge the performance of these major advanced economies at the beginning of Q2.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Global regulators are considering imposing stricter regulations on smaller banks and requiring all financial institutions to be prepared for faster withdrawals of deposits, as they learn from recent banking failures. The Basel Committee on Banking Supervision has promised to examine the need for additional rules following the collapse of several mid-sized US banks. Policymakers at the IMF spring meetings in Washington have indicated that lessons will be drawn from the demise of Silicon Valley Bank in California.

The Bank of England is considering a major overhaul of its deposit guarantee scheme, including increasing the coverage for businesses and requiring banks to pre-fund the system to a greater extent to ensure quicker access to cash in the event of a bank failure. The Financial Services Compensation Scheme in the UK is under urgent review after the rapid failure of Silicon Valley Bank’s UK subsidiary last month, which led to billions of pounds being withdrawn overnight in panic. Regulators are concerned that the current coverage limit of £85,000 only covers two-thirds of deposits and that the level of pre-funding is low, resulting in delays of at least a week for customers to access their funds.

GBP

Sterling is well bid against most major currencies this morning. In the UK aviation sector, demand for flying is expected to slow in the coming decades due to higher ticket prices resulting from the industry’s efforts to adopt expensive new technologies to reduce carbon emissions. Despite committing to reaching net zero emissions by 2050, UK airlines, airports, and aerospace manufacturers believe that aviation can continue to grow while decarbonizing. Additionally, a group of major investors managing £2.4 trillion will use this year’s shareholder meetings to pressure large UK employers to protect their lowest-paid workers during the current cost-of-living crisis.

EUR

Euro is stronger against the dollar this morning. The European Central Bank’s “strong consensus” to raise interest rates has led to speculation about a 50-basis-point hike in May, with some suggesting a 25-basis-point increase or a pause as possible alternatives. India and Russia are discussing a free trade agreement to promote investment between the two countries, as India has increased its oil purchases from Russia and has not explicitly condemned the war in Ukraine, calling for a peaceful resolution through dialogue. Turkey is preparing to receive its first delivery from a large natural gas discovery in the Black Sea, with President Recep Tayyip Erdoğan aiming to boost his credentials ahead of a closely contested election.

USD

The dollar is weaker than most major currencies in the early morning trade. The recent turmoil in the banking sector, triggered by the collapse of Silicon Valley Bank, has raised concerns among investors about the outlook for interest rates and bond yields, as global inflationary pressures persist. Efforts to bring new liquefied natural gas projects online in the US are complicated by intense competition among developers and rising costs, even as demand for American fuel exports increases due to the fallout from Russia’s invasion of Ukraine. China is also targeting western interests in the country after facing trade and technology restrictions imposed by the US in recent years under both the Trump and Biden administrations.

Markets

European stocks posted modest gains along with US share futures at the start of the week with more earnings to provide a barometer of corporate health and the threat of recession. The Stoxx Europe 600 opened about 0.3% higher with miners and energy companies outperforming. S&P 500 futures rose around 0.2% while contracts for the Nasdaq 100 were marginally higher. Shares in Hong Kong and Shanghai rose before data Tuesday that’s projected to show China’s economic reopening gaining momentum.

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

10:00 a.m.: Italy March CPI
10:00 a.m.: Switzerland Sight Deposits
2:00 p.m.: Poland March CPI
3:00 p.m.: BOE’s Cunliffe speaks

Corporate Events

Earnings include Charles Schwab, State Street

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