June 22, 2023

“UK’s high inflation and mortgage market chaos may lead the BOE to increase interest rates today. A 25-bp rise to 4.75% is expected, but there’s a 40% chance of a 50-bp increase. We will also be looking forward to later, where Chairman Powell of the Fed will testify about Semi-Annual Monetary Policy Report in the US.”

Tim Hallinan – Trading Director

Main Headlines

If the economy keeps going as it is, it’s likely that the Federal Reserve will increase rates further. Fed Chair Jerome Powell mentioned this during a hearing with lawmakers, saying that last week’s decision to keep interest rates steady shouldn’t be seen as a pause. Most policymakers expect two more quarter-point rate increases by year-end. Muted increases in US oil production and cuts by the OPEC+ producing-nations group will limit crude supply in the months ahead, pushing up prices, an executive at US shale producer EOG Resources said yesterday. US energy firms have cut domestic oil and gas drilling activity to the lowest level since April 2022 with declines from Texas to Pennsylvania. Analysts expect further cuts this year with oil and gas prices off from last year’s strong levels.

The BoE will raise interest rates for the 13th consecutive time on Thursday, following higher-than-expected inflation data. There is uncertainty among investors regarding the magnitude of the hike. Economists surveyed by Reuters predict a rise to 4.75%, the highest since 2008, from the current 4.5%. However, due to May’s inflation rate remaining at 8.7%, financial markets indicate a nearly 50% possibility of a larger increase of 0.5%. British banks are gearing up to share more data with their peers on suspected serious economic crime as part of wider efforts to stem dirty money flows into the country from Russia and elsewhere, four sources with knowledge of the matter told Reuters. More than half a dozen banks are in advanced talks with British law enforcement and government agencies on plans to systematically share intelligence on major financial crimes such as money laundering and terrorism financing in two landmark pilots expected to launch within months, the sources said.

GBP

Sterling is weaker than most major currencies in the early morning trade Today, the BoE will announce the interest rates for overnight lending to financial institutions. Although the rate decision is usually anticipated by the market, it often takes a backseat to the Monetary Policy Summary, which focuses on the future that the central bank will leading towards. The BoE’s MPC meeting minutes reveal the interest rate vote of each MPC member from the most recent meeting, offering insights into members’ changing stances and the likelihood of future rate adjustments. Investors will be focused on the next BoE monetary policy announcement, as the bank is expected to increase rates as inflation remains high, though markets are divided on whether it will opt for 25 or 50 basis points.

EUR

Euro is stronger against Sterling and weaker against Dollar this morning. The weekly number of new unemployment insurance claims is a crucial indicator for assessing economic health. It reflects labour market conditions, which significantly impact consumer spending. Unemployment rates also hold significant importance for policymakers shaping the country’s monetary policy. Later today we will also be hearing from Eurostat as they publish their Consumer confidence report. This measures the level of a diffusion index based on customers that have been surveyed, and the last 5 months of reporting have indicated a large degree of pessimism in the market, however this seems to be trending upwards as it has consumer confidence has increased from –21 to –17 over this period. We will see if this trend continues to a more reserved degree of optimism or if it will begin to stagnate.

USD

Dollar is well bid against most major currencies overnight. Later today we will be hearing from Chairman of the Federal Reserve Jerome Powell, who will be testifying about the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Washington DC. The testimony will come in 2 parts, first will be a prepared statement, and second will be a question-and-answer session. Since the questions are not known beforehand, they tend to lead to heavy market volatility. We will also be hearing from a member of the Federal Open market Committee, the Fed Governor Michelle Bowman, who is due to deliver the opening remarks at the “Fed Listens” event at the Cleveland Federal Reserve. Lastly, later today we will receive the unemployment claims reporting from the US Department of Labour, this report measures the number of unemployment insurance claims filed for the first time in the last week. The last 2 reports have both been higher that the forecast by a significant amount, so we will see if this trend continues or if it starts to change.

Markets

Stocks slumped with US equity futures before a swathe of central bank decisions from the UK to Norway and Switzerland that are likely to send interest rates higher. Banks, real estate, and miners paced losses of more than 1% in Europe, where a gauge of stocks extended declines to the fourth day. Contracts for the S&P 500 and Nasdaq 100 pointed lower following a selloff on Wall Street on hawkish warnings by Federal Reserve Chair Jerome Powell in testimony to Congress.

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

8:00 a.m.: Denmark June Consumer Confidence
8:45 a.m.: France June Manufacturing Confidence9:30 a.m.: SNB Monetary Policy
10:00 a.m.: Norway Monetary Policy
10:00 a.m.: Poland May Retail Sales
11:00 a.m.: Iceland May Wage Index
11:15 a.m.: ECB’s Panetta speaks
1:00 p.m.: BOE Monetary Policy
1:00 p.m.: Turkey Monetary Policy
2:00 p.m.: ECB’s Nagel speaks
3:00 p.m.: Russia June 16 Gold and Forex Reserve
4:00 p.m.: Euro-area June Consumer Confidence
4:00 p.m.: Powell testifies before Senate Banking Committee
4:30 p.m.: ECB’s Guindos speaks
Emmanuel Macron convenes Summit for a New Global Financial Pact in Paris through June 23
EU European affairs ministers meet in Stockholm

Corporate Events

Earnings include Accenture, Darden Restaurants, Smith & Wesson

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