June 23, 2023

“The Bank of England raised interest rates to their highest level since 2008, aiming to combat inflation. Despite expectations of a slowdown, the inflation rate remained at 8.7% in May. The decision to raise rates beyond expectations has sparked concerns of a possible recession. This marked the 13th consecutive hike, twice the predicted amount by economists.”

Sam Cornford, Partner – Head of Trading 

Main Headlines

US Federal Reserve Chair Jerome Powell announced a cautious approach to adjusting interest rates during his testimony. He highlighted the need to proceed carefully as policymakers near the end of their monetary policy tightening. Warren Buffett donated $4.64 billion of Berkshire Hathaway stock to five charities, marking his largest annual contribution of 13.7 million Class B shares. The Bill & Melinda Gates Foundation received 10.45 million shares, totalling over $39 billion in donations from Buffett since 2006.

The CEOs of the biggest banks in Britain have gathered at Downing Street for a meeting with the Chancellor to discuss assistance for mortgage holders affected by rising interest rates. Jeremy Hunt will inquire if banks can provide further support to households facing difficulties due to the recent 0.5% increase in interest rates by the Bank of England. This increase has exacerbated the mortgage crisis. The meeting, attended by major lenders like HSBC and Santander, takes place as the government faces mounting pressure to alleviate the situation. Both Prime Minister Rishi Sunak and Mr. Hunt have ruled out a financial intervention. During the meeting at No 11 Downing Street, the Chancellor is expected to urge lenders to fulfil their commitments in offering tailored support to those struggling to make payments.

GBP 

This morning, the British pound is stronger against the Euro and weaker against the Dollar. Earlier today, we received updates on the British PMI for Flash Manufacturing and Services reporting. These are leading indicators of Market health as the business’ purchasing managers hold the most current and relevant insight into any company’s view of the economy. The last 5 months of reporting have been a bit of a mixed bag, with the last 3 months actual reporting being much lower. This month’s reporting showed slightly better movement, with the Manufacturing report falling at only 7bps lower than the forecast, and the Services falling by 11bps from the forecast. We also heard from the GfK report on consumer confidence, which measures the level of diffusion index based on customers, which is a leading indicator of consumer spending, which accounts for a majority of overall economic activity. This report showed a positive movement, with the actual reporting beating out the forecast going from -27 to -24, showing a small degree of more confidence in the markets than was expected.

EUR 

The Euro’s traded lower compared to other major currencies this morning. Earlier today, we received updates on the French and German PMI for Flash Manufacturing and Services, as well as for the total of the Eurozone. Both reports we’re negative, with the Service’s report falling at 20bps lower than the forecast, and the Manufacturing falling by 12bps. We will also be hearing later from ECB President Christine Lagarde, who is due to speak at the summit for a New Global Financing Pact in Paris. Volatility is often experienced during her speeches as traders attempt to decipher interest rate clues.

USD 

The US dollar has been performing well compared to other major currencies lately. Today, the S&P Global will release their Purchasing managers Index report for Flash Manufacturing and Flash Services. Both of these reports are leading indicators of Market health as the business’ purchasing managers hold the most current and relevant insight into any company’s view of the economy. These reports measure the level of a diffusion index based on the surveyed managers, and the last 5 months of reporting have been mostly positive for both Services and Manufacturing, with only last month’s actual reporting being lower than the forecasted for the Manufacturing only. So we will see if this positive streak continues, or if the anomaly for last month is the beginning of a new trend in the market.

Markets 

Global stocks are set to have their largest weekly drop in over three months due to concerns of a recession caused by central banks raising interest rates. European stocks fell for the fifth consecutive day, with Siemens Energy AG’s shares experiencing a significant 36% decline after a profit warning. This decline marks their worst performance for a week since mid-March. The most significant losses in Asia were observed in Hong Kong, as traders caught up after a holiday on yesterday.

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

9:30 a.m.: Germany June HCOB PMIs
10:00 a.m.: Euro-area June HCOB PMIs
10:30 a.m.: UK June S&P Global/CIPS PMIs
11:30 a.m.: ECB’s Vujcic speaks
12:00 p.m.: Portugal 1Q GDP
12:00 p.m.: ECB’s De Cos speaks
2:00 p.m.: Poland May M3
2:45 p.m.: ECB’s Panetta speaks
3:00 p.m.: Belgium June Business Confidence

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