June 05, 2023

“The dollar strengthened against its major counterparts following a strong US jobs report, leading traders to raise expectations of further interest rate hikes. Meanwhile, the Turkish lira experienced a decline of over 1%, continuing its downward trajectory since President Tayyip Erdogan’s re-election.”

Tim Hallinan – Trading Director

Main Headlines

Several US banks are preparing to sell property loans at a discounted rate, even if borrowers are current on their repayments. This demonstrates their determination to reduce exposure to the unstable commercial real estate market. The willingness of these lenders to accept losses on performing real estate loans follows numerous warnings that this asset class is the “next shoe to drop” after recent turmoil in the US regional banking industry. HSBC USA is currently in the process of selling hundreds of millions of dollars’ worth of commercial real estate loans, potentially at a discount. This is part of their effort to wind down direct lending to US property developers, as reported by three individuals familiar with the matter.

Rishi Sunak is scheduled to travel to Washington this week for discussions with US President Joe Biden, as the Prime Minister aims to assert British “leadership” in the discourse on the development and regulation of artificial intelligence. Sunak is expected to explore the concept of a proposed “Cern for AI,” modelled after the international particle physics project, which conducts research in a highly controlled ethical and physical environment. Additionally, he plans to raise with Biden the idea of establishing a global AI regulatory body, potentially based on the International Atomic Energy Authority.

GBP

Sterling is weaker than most major currencies in the early morning trade. Labour is set to receive a financial boost of £5 million from the former CEO of a car glass repair company to support its campaign in the next election. This indicates that the UK’s main opposition party is successful in attracting new donors. Although new car sales in Britain have experienced a rise in May compared to the previous year, they remain below pre-pandemic levels. Approximately £9 billion worth of old banknotes, which ceased to be legal tender in October, have not been exchanged or deposited across the UK. Paper banknotes have been replaced with polymer notes that incorporate various security features. The Bank of England stated that these withdrawn banknotes can still be deposited or exchanged.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Germany is launching a program that will provide tens of billions of euros to companies facing significant energy costs. The aim is to assist the struggling industrial sector in transitioning to carbon-neutral production techniques. Train travel to and from Amsterdam and other parts of the Netherlands was disrupted for several hours on Sunday and Monday due to a computer outage. The Defence Ministry of Russia reported that its forces successfully thwarted a large-scale Ukrainian attack in an eastern province. The ministry stated that its forces repelled the assault at multiple points in southern Donetsk, one of the four Ukrainian regions that Russia illegally annexed last fall. Kyiv did not provide any comments on the matter.

USD

The dollar is well bid against most major currencies this morning. A law that is close to being approved in the state of New York would require commercial creditors, including bondholders, to provide the same relief as lender governments when restructuring sovereign debts of developing countries. Economists predict that a surge in generative artificial intelligence and pandemic-induced shifts in the workplace will usher in a new era of faster productivity growth across wealthy nations. However, it may take a decade or longer for advanced economies to fully reap the benefits. Large banks in the US may face a 20% increase in capital requirements following the collapse of several smaller regional lenders this year.

Markets

US futures were steady after Friday’s US payroll data helped take the underlying S&P 500 index to the cusp of a bull market. Oil advanced on the back of Saudi Arabia’s pledge to cut production.
In Europe, stocks edged higher, following gains for benchmarks in Asia. In Tokyo, the Nikkei 225 climbed as much as 2%, headed for its highest close since July 1990, helped by a sharp weakening of the yen last week.

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

8:00 a.m.: Germany April Exports
8:30 a.m.: Switzerland May CPI
8:30 a.m.: Sweden May Swdebank/Silf PMI Composite, Services
9:15 a.m.: Spain May HCOB PMI Composite, Services
9:45 a.m.: Italy May HCOB PMI Composite, Services
9:50 a.m.: France May HCOB PMI Composite, Services
9:55 a.m.: Germany May HCOB PMI Composite, Services
10:00 a.m.: Euro-area May HCOB PMI Composite, Services
10:00 a.m.: UK May New Car Registrations
10:30 a.m.: UK May S&P Global/CIPS PMI Composite, Services
11:00 a.m.: Euro-area April PPI
3:00 p.m.: ECB’s Lagarde speaks
3:45 p.m.: US May S&P Global services/composite PMI
4:00 p.m.: ECB’s Nagel speaks
4:00 p.m.: US April Factory orders, May ISM services

Corporate Events

Earnings include Science Applications, Gitlab
Apple’s Worldwide Developers Conference

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