August 15, 2023

“Strong wage data from the UK this morning could raise concerns for the BoE’s inflation projections. Later today, traders will closely watch the US retail sales release, expected up slightly at 0.4%. Alongside this, the recently volatile Empire State Manufacturing Index will give the market insight into the sector.” 

 Tim Hallinan – Trading Director 

Main Headlines

 US banking regulators aim to prevent the need for sudden sales of large regional banks during emergencies. They plan to do this by making banks create “living wills,” which are plans that outline how to safely close a troubled bank. Banks with assets over $100 billion will have to provide more detailed plans for how they would handle such situations. They will also need to raise new debt that is not backed by collateral. This debt could be used to support a bank if it fails. Martin Gruenberg, who chairs the Federal Deposit Insurance Corporation, explained this on Monday. The regulators are taking action because earlier this year, Silicon Valley Bank, Signature Bank, and First Republic faced problems and had to be taken over, closed, and sold to larger banks, causing significant losses to the FDIC’s fund that protects deposits. 

 Yesterday, Britain’s finance minister Jeremy Hunt announced that he has chosen Tom Josephs to join the Budget Responsibility Committee in the government’s budget watchdog, known as the Office for Budget Responsibility. The OBR is responsible for making predictions about the country’s economy and finances, which are used as a foundation for government budgets. It also assesses how likely the government is to meet its financial goals. If approved by the Treasury Committee in parliament after a meeting in September, Josephs will take the place of Andy King, a current OBR board member who is leaving on August 31. Jeremy Hunt stated that Josephs has exceptional knowledge about the UK’s public finances and extensive experience in analysing economic and financial matters both within the country and internationally. 

GBP

 Sterling is stronger against Dollar and is steady against Euro this morning. In the UK, basic wages are growing at a record pace, raising concerns for the Bank of England about long-term inflation. An unexpected rise in unemployment rate showed a cooling in the job market, up to 4.2% from 4.0%. Despite this, basic earnings surged by 7.8%, the fastest since 2001, contributing to high inflation as employers offer better pay. Annual pay growth, including bonuses, hit 8.2%, second only to pandemic-distorted data. We now look ahead to the UK CPI read tomorrow morning. 

 EUR

Euro is well bid against most major currencies overnight. UBS has agreed to pay $1.4 billion to settle a US investigation into claims of wrongly selling mortgage bonds before the 2008 financial crisis. This closes the last case brought by the US government against Wall Street groups regarding this issue. The US Department of Justice said that UBS deceived investors by selling 40 residential mortgage-backed securities deals between 2006 and 2007. These deals suffered large losses during the housing crash. The Department of Justice stated that UBS knew that many of the loans behind these deals didn’t follow proper guidelines for assessing borrowers’ repayment ability. 

 USD

 The Dollar is weaker than most major currencies this morning. All eyes today will be on the US retails sales data for July, with the figure expected up at 0.4%. This data is used to assess consumer spending and gauge the overall economic activity. Alongside this, the Empire State Manufacturing index will be released. Last month, it was down at 1.1, a drop from 6.6 the month before and 11.1 a year ago. If the reading is above 0, it means manufacturing is growing; if below 0, it means manufacturing is declining. The expectation for today’s figure is -0.9. 

Markets

The yuan slid to the weakest level since November and China’s sovereign bonds rallied after the central bank unexpectedly cut a key interest rate to boost its ailing economy. The Chinese currency slipped as much as 0.5% after policymakers lowered the rate on one-year loans — known as the medium-term lending facility — by 15 basis points to 2.5%. Only one of 15 economists surveyed by Bloomberg had predicted the move, which came shortly before the release of disappointing data for July showing growth in consumer spending, industrial output and investment sliding across the board and unemployment picking up. 

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

11:00 a.m.: Germany Aug. ZEW Survey
2:30 p.m.: US Retail Sales
2:30 p.m.: US Empire Manufacturing
5:30 p.m.: Israel July CPI
Nigeria July CPI 

Corporate Events

Earnings include Home Depot, Sea  

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