June 12, 2023

June 12, 2023

“KPMG’s report shows a brighter economic outlook with projected growth of 0.3% this year, surpassing the initial forecast of 0.1%. However, the CBI warns that the UK economy will be 7% smaller because of last impacts from the pandemic. Additionally, Catherine Mann of the BoE, will be speaking at the Signum Global Advisors webinar later today, which may shed light on forthcoming policy decisions.”

Tim Hallinan – Trading Director

Main Headlines

House Republicans introduced tax break proposals, aiming to benefit businesses and families while reversing some of President Biden’s legislative achievements. The bills focus on boosting clean-burning electric vehicle sales and will undergo review by the House Ways and Means Committee next week. The Joint Committee on Taxation is expected to release its analysis of the package concurrently. In other news, The U.S. Chamber of Commerce filed a lawsuit against the federal government on Friday, contesting a new law granting Medicare the authority to negotiate drug prices with pharmaceutical companies. The chamber argued that the pricing program infringed upon drugmakers’ constitutional due process rights by granting the government unrestricted control over setting maximum prices.

Despite narrowly avoiding a second recession, Britain’s pandemic scars persist. KPMG’s recent report reveals an improved economic outlook, projecting 0.3% growth this year compared to the initial forecast of 0.1%. Nevertheless, British households and businesses will endure further financial hardships as the Bank of England plans three interest rate hikes (currently 4.5%) to tackle ongoing inflation. The CBI warns that the UK economy will be 7% smaller due to the pandemic, with only Germany experiencing more severe damage among leading developed nations. British mortgage rates rose on Friday, raising concerns among economists about the housing market’s vulnerability to higher borrowing costs. The average rate for a two-year mortgage deal increased to 5.82% from 5.30% a month ago. Mortgage lenders have responded by raising interest rates, and HSBC temporarily suspended mortgage products for customers applying through brokers on Thursday.

GBP

Sterling is stronger against the Dollar and weaker against the Euro this morning. Later today, Catherine Mann, a member of the Bank of England (BoE), will be speaking at a webinar hosted by Signum Global Advisors. These events are known for providing subtle hints regarding future monetary policy, and traders are eagerly anticipating her remarks. In other news, Bank of England’s Monetary Policy Committee member Jonathan Haskel, expressed the possibility of multiple interest rate hikes from the current level of 4.5% to curb inflation. He emphasized the importance of countering inflation risks and stated that further rate increases should not be ruled out. Economists surveyed anticipate the BoE to raise its main lending rate to 4.75% next week, while financial markets project interest rates climbing as high as 5.5% by year-end to address elevated inflation levels.

EUR

The Euro is well bid against most major currencies overnight. UBS will implement strict limitations on Credit Suisse bankers, including prohibiting new clients from high-risk countries and complex financial products starting on Sunday. The emergency takeover of Credit Suisse by UBS is expected to conclude on Monday. UBS has established a list of “red lines” that restrict Credit Suisse staff from various activities, such as accepting clients from countries like Libya, Russia, Sudan, and Venezuela, and introducing new products without approval from UBS managers.

USD

The Dollar is weaker than most major currencies in the early morning trade. Today, the US Department of the Treasury will release the monthly Federal Budget Balance report, which measures the disparity between the federal government’s income and spending in the previous month. The past five months have shown positive results, and it remains to be seen if this trend will persist or if any deviation emerges. Later today, we will receive a report from the US Treasury on the levels of the 10-year bond auction. This report holds significance as bond market investors set yields, providing insight into their expectations for future interest rates. These reports typically have varying effects, as they carry both risk and growth implications.

Markets

Stocks climbed as traders prepared for a week packed with interest-rate decisions from major central banks. A spurt of dealmaking news boosted sentiment in the equities market. Consumer products and auto shares led the advance in Europe, while rising US futures pointed to modest gains later on Wall Street. A gauge of Asian stocks rose.

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

8:00 a.m.: Denmark May CPI
8:30 a.m.: ECB’s Simkus speaks
9:00 a.m.: Czech May CPI
9:00 a.m.: Turkey April Current Account
4:00 p.m.: BOE’s Mann speaks
8:00 p.m.: US May Monthly Budget Statement

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