July 26, 2023

“Financial markets are calm this morning as investors await the conclusion of the US Fed’s two-day policy meeting. FOMC Chairman Jerome Powell will comment on the policy outlook during a press conference after the rate decision announcement later today. New Home Sales data for June will also be featured on the US economic docket.”

Tim Hallinan – Trading Director

Main Headlines

Investors are keeping a watchful eye on the US Federal Reserve, expecting a quarter percentage point increase in interest rates today. If realised, it will mark the 11th rate hike in the past 12 policy meetings, potentially concluding the central bank’s aggressive battle against inflation. Almost certainly anticipated by investors, this move would bring the benchmark overnight interest rate to the 5.25%-5.50% range, the highest level since the approach to the 2007-2009 financial crisis and recession.

Following her admission of a “serious error of judgment” in discussing former Brexit party leader Nigel Farage’s association with the bank to a BBC journalist, CEO Alison Rose resigned with immediate effect yesterday. NatWest announced that Paul Thwaite, head of the bank’s commercial and institutional business, will take the helm for an initial period of 12 months. The bank has been under intense political and media scrutiny over its private bank Coutts’ decision to close Farage’s accounts, resulting in a 2.2% drop in NatWest Group (NWG.L) shares.

GBP

Sterling is stronger against the Dollar and weaker against Euro this morning. The Financial Conduct Authority (FCA) has urged firms to enhance their customer interactions to offer prompt assistance during a cost of living crisis, as stricter consumer protection rules are set to take effect next week. According to the FCA’s Financial Lives survey, 7.4 million people tried unsuccessfully to contact their financial services providers in the 12 months leading up to May 2022. The FCA will implement its new “consumer duty” next Monday, obligating regulated firms to demonstrate good customer outcomes, including responsive customer service, informative communications, and fair product value.

EUR

Euro is well bid against most major currencies overnight. Eurozone banks have reported a substantial decline in demand for business loans, reaching an all-time low. This has sparked calls for the European Central Bank to reconsider hints of further interest rate increases following its meeting this week. The ECB’s latest survey of banks also revealed reduced loan demand from households and tighter credit criteria from lenders, suggesting that the 20-country currency bloc’s economy is increasingly affected by high borrowing costs. The central bank’s plan to raise rates by a quarter percentage point tomorrow is being closely monitored.

USD

The Dollar is weaker than most major currencies in the early morning trade. The Dollar is hovering near a two-week high this morning, ahead of the expected interest rate hike by the US Federal Reserve later today. Traders are also eagerly awaiting policy decisions from the European Central Bank (ECB) and Bank of Japan (BoJ) this week. The US dollar index, which measures the currency against six major peers, has slightly decreased by 0.17% but remains close to the two-week high reached yesterday. Money market traders consider a quarter point hike from the Federal Reserve later today as almost certain, while opinions are divided on the likelihood of another hike later in the year.

Markets

European stock markets showed a slight decline early this morning, with a flurry of earnings reports and ahead of the latest monetary policy update from the US Federal Reserve. The benchmark Stoxx 600 index slipped by 0.1%, with sectors experiencing mixed performance. France’s CAC 40 fell by 0.77%, impacted by luxury goods giant LVMH reporting a surprise slowdown in US sales after the market closed yesterday. Meanwhile, banks edged 0.1% higher, boosted by Deutsche Bank and UniCredit exceeding expectations. In the United States, investors digested earnings results from Alphabet and a slowdown in cloud revenue growth from Microsoft, with upcoming reports from Coca-Cola, Boeing, AT&T, Meta, Chipotle, and Mattel to follow.

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

8:00 a.m.: Sweden June Trade Balance
8:45 a.m.: France July Consumer Confidence
10:00 a.m.: Eurozone June M3 Money Supply
6:00 p.m.: Russia June Industrial Production
8:00 p.m.: Fed rate decision
8:30 p.m. Jerome Powell press conference
Austria’s Salzburg Summit; speakers include Deutsche Bank CEO Christian Sewing and EU commissioners Thierry Breton, Paolo Gentiloni and Johannes Hahn

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