July 12, 2023

“The US Dollar is weakening against its rivals due to a positive shift in risk sentiment, with the US Dollar Index (DXY) hitting a two-month low. Investors are eagerly awaiting the release of the June Consumer Price Index data from the US today. The Bank of Canada will also announce its monetary policy decisions, and the US Federal Reserve will publish the Beige Book report, along with speeches from Fed officials Bostic and Mester.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Joe Biden is scheduled to meet Ukrainian President Volodymyr Zelensky today during the second day of a significant NATO summit. The meeting will take place in Vilnius, the capital of Lithuania. Yesterday, Zelensky criticized NATO leaders on Twitter for not extending membership to Ukraine, calling their inaction “absurd.” Meanwhile, Nato leaders, including Turkey, expressed their willingness to welcome Sweden into the membership. Recently, President Biden approved the controversial shipment of cluster munitions to Ukraine but also stated that he believes Ukraine is not ready for membership.

The Bank of England announced today that Britain’s eight largest lenders possess sufficient capital to withstand economic stress more severe than the 2008 financial crisis. As interest rates rise sharply, impacting consumers and businesses, the test examined whether the banks held enough capital to handle hypothetical shocks. The test also evaluated the lenders’ ability to cope with a global increase in interest rates. These eight banks, including Barclays, Lloyds, HSBC, NatWest, Santander UK, Standard Chartered, Nationwide Building Society, and Virgin Money, account for 75% of lending in Britain.

GBP

Sterling is stronger against the Dollar and weaker against Euro this morning. The Bank of England reported today that, despite a surge in interest rates over the past 18 months, Britain’s economy has thus far displayed resilience. The Bank raised rates to 5% last month, causing concerns about the potential impact on households, businesses, and the financial sector. However, the Bank’s half-yearly assessment stated that there is no reason for alarm. Governor Andrew Bailey assured that the UK economy and financial system have shown resilience to interest rate risk.

EUR

Euro is well bid against most major currencies overnight. According to data published by Eurostat, the European Union’s population grew in 2022 for the first time in three years. Although there were more deaths than births recorded, increased migration into the EU contributed to the population growth. On January 1, 2023, the EU had 448.4 million residents, up from 446.7 million the previous year. The growth can be attributed to increased migration following the pandemic and the arrival of displaced individuals from Ukraine seeking temporary protection status across the EU after Russia’s invasion in February 2022.

USD

The Dollar is weaker than most major currencies in the early morning trade. The US Securities and Exchange Commission is expected to vote today on implementing “swing pricing” measures to control systemic risk in the money market and large liquidity fund sectors. Swing pricing adjusts a fund’s value based on trading activity, ensuring that redeeming investors bear the costs of exiting the fund without diluting remaining investors. Other fees that will impact parts of the $5.5 trillion industry are also being considered. The commission will vote on a 2021 proposal aimed at enhancing the resilience of money market funds, which required a taxpayer bailout at the beginning of the coronavirus pandemic.

Markets

European markets started the day slightly higher as investors anticipate a crucial US inflation reading later, which will have a significant impact on the Federal Reserve’s interest rate decisions. The pan-European Stoxx 600 rose 0.3% in early trade, with tech stocks leading gains by adding 1%. Most sectors and major exchanges nudged into positive territory, while travel and leisure stocks slipped 0.4%. The European blue-chip index closed Tuesday’s session 0.7% higher, primarily driven by gains in construction and material stocks. In Asia-Pacific, shares were mixed, with Japan’s Nikkei 225 retreating while Hong Kong’s Hang Seng index continued to rally. In early premarket trade, US stock futures showed little change.

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

8:00 a.m.: BOE releases financial stability report
9:00 a.m.: Spain June CPI
9:00 a.m.: Turkey May Industrial Production
10:00 a.m.: BOE’s Bailey at a press conference
11:00 a.m.: UK to sell bonds
12:00 p.m.: Portugal June CPI
1:15 p.m.: BOE’s Breeden & Foulger brief on financial stability
2:30 p.m.: US June CPI
2:30 p.m.: Fed’s Barkin speaks on inflation
3:00 p.m.: ECB’s Vujcic speaks
3:45 p.m.: ECB’s Lane speaks
3:45 p.m.: Fed’s Kashkari discusses monetary policy
6:00 p.m.: Russia June CPI
6:00 p.m.: WASDE July report
7:00 p.m.: Fed’s Bostic speaks
8:00 p.m.: Fed releases Beige Book
10:00 p.m.: Fed’s Mester speaks
Biden to meet Zelenskiy, address NATO summit in Vilnius

Corporate Events

Earnings include DNB Bank, Kongsberg Gruppen

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