July 19, 2023

“UK CPI eased to a 15-month low of 7.9% in June, raising the likelihood of a 25bp interest rate hike by the Bank of England next month. On the back of this, sterling fell to a one week low against the dollar” 

Sam Cornford – Head of Trading 

Main Headlines

This morning, UK CPI eased to a 15-month low of 7.9% in June, which was lower than the expected. This makes it more likely that the Bank of England will raise interest rates by only a quarter point next month. The annual inflation rate was down from 8.7% in May. Economists had forecasted 8.2%, but the actual figure of 7.9% put an end to a four-month period of price growth exceeding forecasts. The current rate also matched the Bank of England’s forecast in May and is the lowest since March 2022. In response to the news, the value of the British pound fell against the US dollar, trading 0.6% lower, reaching its lowest point in a week. 

Yesterday, big banks in the US reported that higher interest rates had a positive impact on their profits during the second quarter, leading to a rise in shares prices. However, there are some concerns about the future outlook for the sector due to reduced consumer spending, slower loan growth, and increased deposit costs. On the bright side, there are signs of improvement in the investment banking sector, which had been struggling due to higher rates and economic uncertainty affecting deals and trading. This improvement also contributed to the increase in share value, with Morgan Stanley being among the banks that saw gains based on yesterday’s predictions, showing growth in certain merger and acquisition activities. 

GBP

Sterling is weaker than most major currencies in the early morning trade. The British finance minister, Jeremy Hunt, mentioned that reducing inflation to the desired target still requires significant progress. In June, the annual consumer price inflation was 7.9%, which was lower than anticipated. Hunt informed reporters on Wednesday that the government and the Bank of England had made tough decisions regarding inflation in recent months. He stated that while they are starting to see positive results, there is still a considerable journey ahead. 

EUR

Euro is well bid against most major currencies overnight. Earlier this morning, the Final CPI reading was as expected at 5.5%, with the core reading up slightly from 5.4% to 5.5%. This report measures the change in price of goods and services purchased by customers in the Eurozone and has been very stable against expectations over the previous few months. We have also received the German 30-y bond auction reporting from Bundesbank, which measures the average yield on a 30-year bond the government sold at auction, and the bid-to-cover ratio of the auction. There was no forecast on these figures, and the actual reporting was 2.40|2.0, which is a marginal change from previous months reporting.  

USD

The dollar is stronger against the sterling and weaker against the euro this morning. Today, we’ll get the number of new residential buildings that began construction last month, presented as an annualized figure. Building Permits are a leading economic indicator, closely linked to construction, which generates jobs and impacts the economy. The U.S. dollar rose from a 15-month low against various currencies on Tuesday due to strong core retail sales in June, making investors curious about the upcoming Federal Reserve’s interest rate decision. Overall U.S. retail sales in June increased by 0.2%, but core retail sales, excluding certain categories, were more resilient, rising by 0.6% in June. 

Markets

The pound weakened and bonds rallied after inflation in Britain slowed more than expected, reviving speculation about how many more times the Bank of England will increase interest rates. Stocks in the UK and Europe advanced. The UK Consumer Prices Index was 7.9% higher than a year ago in June, a sharp drop from the 8.7% reading in May. It was the first downward surprise in five months and the biggest since July 2021, below the 8.2% expected by economists. The pound slid as much as 0.8% against the dollar as traders pared bets on further BOE rate hikes, pricing a peak below 6%. A gauge of dollar strength rose. 

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

9:30 a.m.: ECB’s Vujcic speaks
10:00 a.m.: South Africa June CPI
10:30 a.m.: UK May House Price Index
11:00 a.m.: Euro-Area June CPI
1:15 p.m.: Former US Treasury Secretary Robert Rubin speaks
2:30 p.m.: US June Housing Starts
6:00 p.m.: BOE’s Ramsden speaksCorporate Events
Earnings include Constellation Brands 

Corporate Events

Earnings include Goldman Sachs, IBM, Tesla, Netflix, Baker Hughes, Halliburton, First Horizon, Northern Trust, United Airlines 

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