December 15, 2023

“The dollar was poised for its most substantial weekly decline against major currencies since July, influenced by increasing prospects of US rate cuts next year. Meanwhile, the euro and sterling received support this morning as central banks in Europe maintained their hawkish stances. The focus will now shift to the Bank of Japan’s meeting next week, where the central bank is expected to conclude the year as one of the world’s most dovish, with fading expectations of the BOJ exiting its ultra-loose monetary policy.”

Tim Hallinan – Trading Director

Main Headlines

Oil prices increased this morning, set to record their first weekly rise in two months. This boost came after a bullish forecast from the International Energy Agency (IEA) on oil demand for the next year and a weaker dollar. Brent futures rose by 21 cents to $76.82 a barrel at 0640 GMT, while US West Texas Intermediate (WTI) crude climbed by 20 cents to $71.78. Both benchmarks are on track for a modest weekly gain, following a mid-week announcement from the US Federal Reserve indicating likely cuts in borrowing costs next year.

Consumer confidence has risen amid Christmas cheer, providing a small but much-needed boost for retailers. GfK’s long-standing Consumer Confidence Index increased by two points in December but remains firmly in negative territory at minus 22. Expectations for the general economic situation over the next 12 months increased by one point to minus 25 but are 28 points higher than a year ago. Notably, confidence in personal finances, reflecting household financial optimism and control over budgets, has recovered from the depressed minus 29 of a year ago to minus 2. The major purchase index also rose by one point to minus 23.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. Britain’s energy regulator is planning a one-off increase to its price cap on energy bills to reduce the risk of suppliers going bust amid almost £3 billion ($3.8 billion) of customer energy debt. Soaring wholesale energy costs following Russia’s invasion of Ukraine led to record high energy prices last year, which were capped by government support at an average of £2,500 ($3,191) in January for most households. Britain’s financial watchdog urged companies that rate other businesses’ sustainability efforts to sign up to a new voluntary code of conduct, ahead of possible regulations for an industry that channels hundreds of billions of pounds in investments.

EUR

Euro is weaker than most major currencies in the early morning trade. The EU is set to extend its truce with the US over steel tariffs imposed by Donald Trump until after presidential elections next year. European Trade Commissioner Valdis Dombrovskis stated that he was in favour of postponing the reimposition of retaliatory tariffs on American goods, such as bourbon whiskey and Harley-Davidson motorbikes. The EU has failed to agree on a critical €50 billion financial aid package to Ukraine after Hungary’s Prime Minister Viktor Orbán vetoed the proposal, throwing into doubt Europe’s ongoing support for Kyiv. The German economy is set to shrink slightly this year and barely grow the next, as demand from abroad is weak, government subsidies for the green transition are curbed, and high-interest rates dampen activity, the central bank said.

USD

The dollar is well bid against most major currencies this morning. The US Senate will vote on military aid for Ukraine and Israel next week as negotiations continue over changes to US border security policy tied to the funding, Senate Majority Leader Chuck Schumer said on Thursday. Shares in US banks were rallying strongly last night after the Federal Reserve signalled potential interest rate cuts in 2024, with the sector returning to its highest level since early March, just before a crisis that put some banks out of business. The average interest rate on the most popular US home loan fell this week to below 7% for the first time since August, as Treasury market yields dropped sharply after the Federal Reserve firmly signalled it is nearing cuts to its policy rate.

Markets

Equities held gains after the Federal Reserve validated bets that it will soon move to easier policy and pushed stock market gauges toward all-time highs. The Stoxx 600 index hit its highest level since January 2022, on course for a fifth week of gains. Sentiment was also boosted Friday by China’s decision to pump a record amount of cash into the economy, which coincided with renewed property sector support.

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

8:30 a.m.: Norges Bank Publishes Borrowing Plan for 2024 and 1Q
8:30 a.m.: Bundesbank Presents New Economic Forecasts
8:45 a.m.: France Nov. CPI
9:15 a.m.: France Dec. HCOB PMIs
9:30 a.m.: Germany Dec. HCOB PMIs
10:00 a.m.: Italy Nov. CPI
10:30 a.m.: Riksbank publishes FX sales
10:30 a.m.: UK Dec. S&P Global/CIPS PMIs
11:00 a.m.: Euro-area Oct. Trade Balance, 3Q Labor Costs
11:00 a.m.: BOE’s Ramsden speaks
11:30 a.m.: Russia Monetary Policy
12:00 p.m.: ECB’s Centeno speaks
12:20 p.m.: ECB’s Vasle, Kazimir, Muller, Scicluna, Simkus, Vujcic speak
2:30 p.m.: US Dec. Empire Manufacturing
3:15 p.m.: US Nov. Factory Output
3:45 p.m.: US Dec. S&P Global PMIs
3:00 p.m.: BOE releases article on buy-to-let

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.