July 27, 2023

“Today brings a crucial afternoon with 2 significant reports from the ECB: the Main refinancing rate announcement and the bi-quarterly Monetary Policy statement, with a strong likelihood of the refinancing rate being raised to 4.25%. We are also keeping a close eye on the US Advance GDP and unemployment claims report, both of which have shown disparate results over the past few months.”

Tim Hallinan – Trading Director

Main Headlines

Yesterday a significant congressional committee advanced a bipartisan bill to establish a regulatory framework for cryptocurrencies. The bill aims to clarify whether a cryptocurrency is considered a security or a commodity and extends the oversight of the Commodity Futures Trading Commission over the crypto industry. It also seeks to define the Securities and Exchange Commission’s jurisdiction to address concerns about perceived overreach. This marks a milestone for Capitol Hill in its efforts to regulate the digital asset industry. In other news, the Republican-controlled U.S. House of Representatives initiated debates on the first of 12 fiscal 2024 spending bills. This action brings lawmakers closer to a potential confrontation with the Democratic-led Senate, increasing the risk of a government shutdown in the coming autumn. The House voted 217-206, largely along party lines, to allow discussions on a military construction and veterans affairs appropriations bill.

UK regular dividends are expected to increase by 6.1% to £88.9 billion in 2023, driven by a recovery in bank pay-outs. HSBC is set to become the largest payer for the first time since 2008. This estimate from Computershare is £2.7 billion higher than their previous forecast in April, reflecting improved profit prospects in the rate-sensitive industry. Bank pay-outs have now become the main driver of payout growth in the UK, a significant change from three years ago when dividends were restricted due to the COVID-19 pandemic. In other news, A survey revealed that 68% of property surveyors believe Britain’s commercial real estate market is in a downturn due to higher Bank of England interest rates leading to tough credit conditions, the most challenging since 2014. However, certain sectors like industrial property, student housing, and prime office space remain robust.

GBP

Sterling is stronger against the Dollar and weaker against the Euro this morning. Later today we will be receiving the Realised Sales reporting from the Confederation of British Industry. This report’s data comes from a survey of about 125 retail and wholesale companies which asks respondents to rate the relative level of current sales volume and is a leading indicator of consumer spending. The current forecast is at -9, which shows a significant deviation from the last few months of reporting, so we will see whether this new trend continues. Also, British car production increased for the fifth consecutive month compared to the previous year, thanks to the easing of pandemic-induced chip shortages. The Society of Motor Manufacturers and Traders reported that 84,767 cars were manufactured in the UK last month, reflecting a significant year-over-year growth of almost 16.2%. It is projected that total car production will rise by approximately 11% by the year’s end, and there are expectations that output could return to pre-pandemic levels of 1 million by 2028.

EUR

The Euro is well bid against most major currencies overnight. This afternoon we will be receiving 2 important reports from the ECB, the Main refinancing rate, and the bi-quarterly Monetary Policy statement. The main refinancing rate measures the interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system, and the Monetary Policy statement is the primary tool the ECB uses to communicate with investors about monetary policy. The current forecast for the Refinancing rate is 4.25%, and as all of the last forecasts have been accurate, we are confident that the rate will increase. Later in the day there will also be a Press Conference with the ECB that will go over the monetary policy statement and the reasonings behind the main refinancing rate changes, so expect some light volatility.

USD

The Dollar is weaker than most major currencies in the early morning trade. This afternoon we will be receiving the US Advance GDP from the Bureau of Economic Analysis. This measures the annualised change in the inflation-adjusted value of all goods and services produced by the economy. The last few months of reporting have been a bit disparate, with no real trend presenting itself. The current forecast is 1.8%, which is a considerable decline from the last 3 quarters, so we will see how this unfolds. We will also be receiving the unemployment claims report for the week, which measures the number of individuals who filed for unemployment insurance for the first time during the past week. The last few months reporting has looked promising, with a large amount of the reports beating expected forecasts. The current forecast is 234K, so we will see if this trend continues.

Markets

Global stocks rose and the dollar slipped Thursday, as investors wagered the Federal Reserve has reached the end of its 16-month long policy-tightening cycle. The Fed raised the federal funds rate to a 22-year high and while it signalled further hikes would be data dependent, many investors reckon it’s done hiking interest rates and trimmed bets on further increases this year. Meanwhile, a predicted 25-basis-point rate rise later Thursday from the European Central Bank could be one of its last moves this cycle.

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

8:00 a.m.: Germany August GfK Consumer Confidence
9:00 a.m.: Spain 2Q Unemployment
10:00 a.m.: Italy July Consumer and Manufacturing Confidence
1:00 p.m.: Ukraine Rate Decision
2:15 p.m. : ECB Rate Decision
2:30 p.m.: US 2Q GDP
2:30 p.m.: US June Durable Goods Orders, Wholesale Inventories
2:45 p.m.: ECB’s Lagarde speaks
4:00 p.m.:  US Pending Home Sales
US regulators unveil so-called ‘Basel III Endgame’ bank capital rules
Italian PM Giorgia Meloni meets Joe Biden in Washington
Russia hosts African heads of state for a summit

Corporate Events

Earnings include Barclays, Shell, TotalEnergies, VW, Anglo American, BT Group, L’Oreal, Kering, Renault, Intel, McDonald’s, Ford, PG&E, Mastercard, Roku, T-Mobile

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