August 16, 2023

“The UK’s CPI inflation data for July was revealed this morning as the headline rate dropped to 6.8% from 7.9%, while the core rate remained steady at 6.9%. Other key data today includes the second reading of Eurozone Q2 GDP and industrial production figures from both the Eurozone (June) and the US (July). Also, the release of the Fed meeting minutes later in the day will be noteworthy.”

Tim Hallinan – Trading Director

Main Headlines

Private equity company TPG Capital has made an approach to the prominent accounting firm Ernst & Young (EY) with regards to acquiring a share in its consulting division. TPG has outlined a plan involving a combination of debt and equity to separate EY’s consulting branch from its audit business. This proposal was communicated in a letter sent to the top executives of the firm globally and in the US. EY had previously announced in September of the prior year its intention to split the audit and consulting sections into two separate entities due to concerns voiced by regulators. These concerns centred around the potential conflict of interest if EY acted both as an auditor and a consultant for the same client.

As projected, the rate of inflation in the UK reduced during July, marking the lowest annual rate since February 2022. However, there are indications of heightened pressure in core and service-related prices that the Bank of England is closely observing. Data released this morning by the Office for National Statistics (ONS) reveals that the annual consumer price inflation eased to 6.8% from the 7.9% recorded in June, which was in line with the Bank of England’s forecasts. This figure has moved further away from the peak of 11.1% reached in October, a 41-year high, though it remains significantly above the central bank’s target of 2%. In response to this data, the pound experienced a slight increase against the US dollar, strengthening expectations that the Bank of England will persist in its strategy of raising interest rates.

GBP

Sterling is well bid against most major currencies overnight. The pound saw a minor rise against the US dollar earlier today, as the latest UK inflation data solidified expectations that the Bank of England will likely proceed with further interest rate hikes. The inflation rate for consumer prices in July decelerated to 6.8%. However, core inflation, which excludes volatile food and energy prices, remained steady at 6.9% in July, the same as the reading for June, and higher than the predicted 6.8%. Inflation in services accelerated to 7.4% from 7.2% in June. This resulted in the pound gaining 0.3% against the dollar and 0.1% against the euro.

EUR

Euro is stronger against the Dollar and weaker against Sterling this morning. According to the initial estimate published by Statistics Netherlands this morning, the Dutch economy has officially entered a state of recession, contracting by 0.3% on a quarterly basis during the second quarter. This marks the second consecutive quarter of contraction for the euro zone’s fifth-largest economy, following a 0.4% decline in the first three months of the year. The Netherlands had experienced economic growth of nearly 5% annually in both 2021 and 2022, bouncing back quickly from the effects of the COVID-19 pandemic. This first recession since the pandemic has been driven by a drop in consumer spending and exports. Escalating inflation has led to increased food prices and energy costs in the Netherlands and its trading partners. Consequently, consumer spending fell by 1.6%, while exports were 0.7% lower than the first quarter of the year.

USD

The Dollar is weaker than most major currencies in the early morning trade. JPMorgan Chase (JPM.N) and the US Virgin Islands have exchanged fresh allegations this week in legal documents regarding their associations with the late disgraced financier Jeffrey Epstein. The largest bank in the US has detailed how Epstein purportedly funnelled hundreds of thousands of dollars in payments and loans to a former governor of the US Virgin Islands and his spouse. In a separate submission, the territory referenced a 2011 email from a senior JPMorgan executive concerning suspicious cash withdrawals made by Epstein. JPMorgan submitted its claims in a document exceeding 610 pages in a Manhattan federal court. The US Virgin Islands is seeking a minimum of $190 million from JPMorgan for services provided to Epstein from 1998 to 2013.

Markets

Following the release of stronger-than-expected retail sales data, Wall Street’s principal stock indices concluded the day with significant losses, heightening concerns that interest rates might remain elevated for a longer duration. Additionally, major US banks experienced declines due to a report hinting at potential downgrades by Fitch Ratings for certain lenders. According to a report by the Commerce Department, retail sales grew by 0.7% last month, surpassing the predicted 0.4% rise. This indicates the continued strength of the US economy. The S&P 500 index decreased by 1.16%, closing the session at 4,437.86 points. Similarly, the Nasdaq declined by 1.14%, reaching 13,631.05 points, while the Dow Jones Industrial Average decreased by 1.02%, closing at 34,946.39 points. Trading volume on US exchanges was relatively subdued, with 10.1 billion shares traded, as compared to an average of 10.9 billion shares traded over the previous 20 sessions.

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

10:00 a.m.: Poland 2Q GDP
11:00 a.m.: Euro-area 2Q GDP
11:00 a.m.: Euro-area June Industrial Production
1:00 p.m.: South Africa June Retail Sales
1:00 p.m.: US MBA Mortgage Applications
2:30 p.m.: US Housing Starts, Building Permits
3:15 p.m.: US Industrial Production
8:00 p.m.: FOMC Meeting Minutes

Corporate Events

Earnings include Tencent, JD.com, Cisco, Target

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