Morning Report

August 17, 2023

“The dollar pushed the yen deeper into intervention territory this morning as a resilient US economy underscored the need for higher-for-longer interest rates. Despite the decrease in the UK’s CPI inflation in July, traders are still expecting further hikes from the BoE at their next meetings. Anticipated is an upcoming increase in interest rates from the current 5.25% to 5.5%.”

Tim Hallinan – Trading Director

Main Headlines

Federal Reserve officials have grown more cautious about the necessity of continuing to raise interest rates, even though they remain concerned about the Federal Reserve’s ongoing battle against inflation. This shift in sentiment was revealed in the minutes from the July meeting, where all officials unanimously supported a quarter-point rate increase that took place the previous month. However, several policymakers expressed apprehension that the balance between the risks of tightening monetary policy too much versus not taking sufficient action had become more evenly poised or “two sided.”

Since 2015, British retail investors have infused £50 billion into global equity funds while withdrawing significant amounts from funds exclusively focused on the UK market. This trend has further exacerbated the exodus of institutional funds from the London stock market. Data from the Calastone funds network reflects investors’ dissatisfaction with the relatively lacklustre performance of UK stocks. They appear to be placing their trust in global active managers who can shift towards higher-growth areas, such as large-cap technology stocks in the US. While Calastone’s figures are not exhaustive, they are widely regarded as providing a valuable snapshot of investment fund flows.


Sterling is well bid against most major currencies this morning. Residential rents in the UK saw the most significant increase on record in the past month, while house price growth experienced a decline in June. Tenant payments surged by 5.3% in the year up to July, marking the largest annual percentage change since January 2016. The UK government’s proposal to reduce cancer waiting-time targets was met with approval by clinicians and health experts. However, they cautioned that this commitment must be accompanied by adequate resources.


Euro has recovered earlier losses to the dollar and is weaker against sterling this morning. The Netherlands is poised to experience considerably slower economic growth than previously anticipated for this year due to a recession during the initial half of 2023. This downturn has curtailed the robust post-COVID-19 recovery that saw growth rates of almost 5% annually in 2021 and 2022. The country’s GDP expansion is projected to diminish to 0.7% in 2023 and 1.4% in 2024, as stated by the CPB. Conversely, Norwegian oil and gas companies intend to invest more capital in 2023 and 2024 than previously projected. This uptick in investment is primarily driven by increased activity and cost inflation resulting from a weaker Norwegian crown currency. The sector’s largest players now anticipate investing 213 billion Norwegian crowns in 2023, up from the May forecast of 197.8 billion.


Following last night’s strength, the dollar is weaker than most major currencies in the early morning trade. The US, Japan, and South Korea are set to establish a high-level hotline and conduct annual military exercises. This strategic move aims to enhance deterrence against North Korea and China, strengthening the security cooperation between Washington and its Asian allies. On the first anniversary of the Inflation Reduction Act, President Biden positioned the transformative clean-energy legislation as an economic powerhouse, despite its relative obscurity among the public. This law offers substantial tax credits to facilitate consumer adoption of electric vehicles and incentivize renewable energy production by companies. Biden’s overarching goal is to transition the formidable US power sector towards decarbonization.


European shares retreated for a third day as global bonds deepened their slump on concern about higher US interest rates and investors watched for fresh signs of weakness in China. The Stoxx 600 slipped 0.4% at the open, while US equity futures edged higher after Wednesday’s drop on Wall Street. The US 10-year yield rose as much as six basis points to 4.31% on Thursday, taking it to around three basis points away from last October’s peak, which was the highest since 2007.

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

10:00 a.m.: Spain June Trade Balance
10:00 a.m.: Norway Rate Decision
11:00 a.m.: Euro-area June Trade Balance
2:00 p.m.: Riksbank’s Breman speak10:00 a.m.: Spain June Trade Balance
10:00 a.m.: Norway Rate Decision
11:00 a.m.: Euro-area June Trade Balance
2:00 p.m.: Riksbank’s Breman speaks
2:30 p.m.: US Initial Jobless Claims
4:00 p.m.: US Leading Index

Corporate Events

Earnings include Tapestry, Walmart, Farfetch, Applied Materials


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