February 16, 2023

“The dollar weakened against most G-10 currencies overnight as investors showed higher risk appetite on signs that global economic growth is improving amid a slew of strong US economic data – retail sales numbers from January rebounded sharply and printed ahead of expectations after two straight months of declines. Benchmark 10-year US Treasury yields were moderately lower after increasing six basis points yesterday.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Investors who were previously expecting interest rate cuts from the Federal Reserve in 2023 have had to abandon those predictions due to strong US economic data indicating ongoing inflation. At the beginning of February, the futures market indicated that the US central bank would reduce interest rates twice by the end of the year. However, this week, they are suggesting there’s an equal likelihood of one rate cut or none at all during the Fed’s monetary policy meetings in 2023.

Centrica, the owner of British Gas, reported significant profits after energy prices rose last year. The company’s full-year profits for 2022 amounted to £3.3bn, which is more than three times the £948m they made the year before. Energy firms have seen record earnings since the price of oil and gas increased following Russia’s invasion of Ukraine. Due to their substantial profit margins, energy companies are under pressure to pay more tax, which has resulted in higher electricity and gas bills for households in the UK.

GBP

Sterling is stronger against the dollar and weaker against euro this morning. An environmental group has launched a rare legal action against the UK’s financial watchdog, the Financial Conduct Authority. The group alleges that the authority unlawfully approved listing documents that inadequately outlined Ithaca Energy’s climate change risks, an oil and gas producer. In addition, Nicola Sturgeon, Scotland’s first minister and the leader of the Scottish National Party, has resigned due to a backlash over her independence strategy and controversy over proposed gender laws.

EUR

Euro is well bid against most major currencies this morning. The European Union has announced it will impose trade bans and technology export controls worth €11bn against Russia. The EU seeks to weaken Russia’s ability to maintain its “war machine,” according to Ursula von der Leyen, the president of the European Commission. The latest EU measures will limit exports of electronic components used in Russian systems, such as drones, missiles, and helicopters.

USD

The dollar is weaker than most major currencies in the early morning trade. KPMG, one of the Big Four accounting firms, is laying off almost 2% of its staff in the US following a sharp slowdown in its consulting business. US retail sales rose sharply in January, which is the latest in a series of economic data indicating stronger-than-expected growth. This may require the Federal Reserve to continue tightening monetary policy to slow down the American economy.

Markets

European stocks rose and US equity futures edged higher as investors responded to strong earnings and showed an appetite for riskier assets. The dollar slipped. Europe’s Stoxx 600 Index climbed for a fourth day, with media and mining stocks leading the gains. Standard Chartered Plc rose as the emerging markets focused lender announced a buyback and forecast higher returns. Contracts for the S&P 500 and Nasdaq 100 edged higher, after the two US benchmarks advanced yesterday. An index of Asian equities climbed.

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

10:00 a.m.: ECB publishes economic bulletin
10:15 a.m.: ECB’s Panetta speaks
12:00 p.m.: Ireland Jan. CPI
2:00 p.m.: ECB’s Nagel speaks
2:30 p.m.: US Jan. Housing Starts, Jobless Claims, PPI
2:45 p.m.: Fed’s Mester speaks
4:00 p.m.: ECB’s Lane speaks
6:00 p.m.: BOE’s Pill speaks
6:00 p.m.: Norges Bank’s Bache speaks
7:00 p.m.: ECB’s Makhlouf speaks
7:30 p.m.: Fed’s Bullard speaks

Corporate Events

Earnings include Airbus, Nestle, Commerzbank, Renault, RELX, Schneider Electric, Air Liquide, Var Energi, Applied Materials, Datadog, DoorDash, DraftKings, Hasbro, Hyatt, Paramount, WeWork

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