Morning Report

August 18, 2023

“UK retail sales data this morning showed a considerable drop from the recent positive figures, coming in at –1.2% for July. However, a considerable factor in this decline was the unseasonably poor weather across the month. Attention will now turn to next week’s schedule, where we see PMI releases from across the EU, UK and US.” 

 Tim Hallinan – Trading Director 


Main Headlines

The situation in China’s struggling financial and property sector is becoming the main factor affecting market feelings. Due to the recent information from the Federal Reserve having minimal impact on predictions about central banks, and the lack of significant events in developed markets, attention is shifting to China. Chinese authorities have taken measures in the foreign exchange market to protect the yuan, the largest of such interventions seen. The most notable news today is from Evergrande, the company that sent shockwaves in the markets in 2021 for defaulting on huge debts, has filed for bankruptcy in the US to protect its assets, a sign of the growing real estate crisis in China. 

 British retail sales fell more than expected in July as an unusually wet month discouraged shoppers from the high street, according to official statistics. The quantity of goods bought in Great Britain fell 1.2 per cent between June and July, following expansions in the previous three months, according to data published on Friday by the Office for National Statistics. This was a considerably larger drop than the 0.5 per cent contraction forecast by economists. 



In the early morning trading, sterling is lower against other major currencies. The finance ministry revealed that despite the declining use of physical money, almost everyone in the UK will still have access to fee-free cash machines within a three-mile radius. The ministry also stated that banks and building societies will be expected to ensure accessible cash services for withdrawals and deposits, and they might face penalties if they fail to meet these requirements. Over the years, the share of cash transactions has dropped from 62% in 2006 to just 15% in 2021, with a projected decrease to 6% by 2031, influenced by the increasing use of contactless payments through cards and smartphones, accelerated by the COVID-19 pandemic according to UK Finance’s payment markets report. 



Euro is stronger against sterling but weaker against the dollar this morning. France’s President Emmanuel Macron proposed that large companies share higher profits with employees, rather than buying back shares. However, both he and Finance Minister Bruno Le Maire have dismissed the possibility of a windfall tax in France, influenced by anti-usury laws that restrict loan price growth. However, this morning they announced plans to increase tax on the airline sector. This follows Italy’s surprise windfall tax on banks in response to their increased profits due to higher interest rates. In contrast, Germany’s finance ministry refrained from commenting on Italy’s decision, stating that tax hikes aren’t considered due to a pre-existing agreement in the German coalition government. Germany’s significant banks have experienced notable profit growth since the pandemic’s low point, but the windfall tax isn’t under consideration by pro-business Finance Minister Christian Lindner.  


The dollar is stronger than most major currencies this morning. According to analysts and investors, technology stocks have been negatively impacted as US bond yields adjusted for inflation have surged to their highest point in 14 years. These “real yields” on Treasury bonds have risen rapidly over the past two weeks as investors believe the Federal Reserve will maintain high interest rates to manage inflation without causing an economic recession. On Thursday, the yield on US 10-year inflation-linked government bonds, also known as Tips, reached 1.998%, the highest since July 2009, as per Tradeweb data. This represents a 0.4 percentage point increase in August alone. 



Risk assets from European equities to Asian stocks and cryptocurrencies fell on Friday as worries about China and higher global interest rates sapped sentiment. The benchmark Stoxx 600 dropped 0.4%, poised for its third weekly decline — the longest run in almost a year. A gauge of Asia’s shares was on pace for the worst week in eight, with equity benchmarks for Japan, China and South Korea all lower. 


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

8:00 a.m.: UK July Retail Sales
8:30 a.m.: Switzerland 2Q Industrial Output
10:00 a.m.: Norges Bank 3Q Expectations Survey
11:00 a.m.: Euro-area June Construction Output
11:00 a.m.: Euro-area July CPI
12:00 p.m.: Portugal July PPI 

Corporate Events 

Earnings include Deere, Estée Lauder, Palo Alto Networks 


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