June 26, 2023

“May PCE inflation figures from the US, due on Friday, are expected to be weaker than the April reading, which would boost market expectations that the FED will hike only once more this year. This week, traders will closely watch speakers at the ECB Forum for rhetoric on future hiking paths.”  

Sam Cornford, Partner – Head of Trading 

Main Headlines

President Joe Biden will deliver a pivotal economic policy speech in Chicago on Wednesday, marking a significant moment in his re-election campaign. The speech, centred around “Bidenomics,” was disclosed through a White House advisory. Additionally, he will outline plans to cut the deficit, bolster infrastructure, bring back manufacturing jobs, and implement taxes targeting the wealthy. In other news, US companies borrowed 1% more in May compared to a year earlier to finance equipment investments, industry body Equipment Leasing and Finance Association (ELFA) said on Friday. The companies signed up for new loans, leases and lines of credit worth $9.5 billion last month, up from $9.4 billion a year ago. “We have seen some small signs of localized stabilization with previously shy banks and finance companies slowly showing interest in exploring equipment finance assets,” said Daryn Lecy, chief operating officer at Oakmont Capital Services.

British banks agreed on Friday to grant homeowners a one-year grace period for missed mortgage payments and protect the credit scores of borrowers who modify loan terms. These measures were enacted by the government in response to rising interest rates. Finance Minister Jeremy Hunt convened representatives from British banks and lenders after the Bank of England raised interest rates to 5.0% to tackle inflation. Extensive financial support and increased money supply led to inflation in the UK and other countries. Agustin Carstens, the head of the Bank for International Settlements (BIS), warns that authorities now face the challenge of controlling inflation, which may persist until 2027. The BIS, known as the central bank of central banks, made this prediction.

GBP

Sterling is stronger against the dollar and euro in early morning trade. The Confederation of British Industry (CBI) is set to release a forecast regarding the stability of the pound. Last month, the actual outcome was worse than expected, leading to uncertain expectations this time. This forecast is important as it serves as a leading indicator for consumer spending since the sales of retailers and wholesalers are directly influenced by consumer buying patterns. The UK Prime Minister has urged homeowners and borrowers to “hold their nerve” over rising interest rates aimed at bringing down stubborn inflation. Rishi Sunak told Sunday with Laura Kuenssberg: “I want people to be reassured that we’ve got to hold our nerve, stick to the plan and we will get through this”.

EUR

The Euro is holding steady to the dollar this morning. The German IFO Economic forecast, based on input from various sectors, was released this morning. It is highly respected due to its large sample size and correlation with economic conditions. The Index dropped to 88.5 in June, down from 91.5 in May (revised from 91.7). This reading was lower than the market’s expectations of 90.7. At the same time, the Current Economic Assessment Index slightly decreased to 93.7 from 94.8 but surpassed the market’s anticipated value of 93.5. Finally, the Expectations Index, which reflects companies’ projections for the next six months, declined to 83.6 from 88.3. Christine Lagarde, President of the ECB, will speak at the ECB Forum on Central Banking, where her remarks may provide insights into future monetary policy.

USD

Dollar is slightly weaker than most major currencies in the early morning trade. President Joe Biden will deliver a pivotal economic policy speech in Chicago on Wednesday, marking a significant moment in his re-election campaign. The speech, centred around “Bidenomics,” was disclosed through a White House advisory. As Biden intensifies his political events and travel after launching his re-election campaign two months ago, he will address familiar themes like his opposition to Republican “trickle-down” economics. Additionally, he will outline plans to cut the deficit, bolster infrastructure, bring back manufacturing jobs, and implement taxes targeting the wealthy. Wall Street banks are cautious about the US stock rally due to high valuations. Despite a slight pullback, the S&P 500 has risen over 13% this year. Lower inflation, AI advancements, and increased risk appetite contributed to this growth. However, stock prices are now higher, with the S&P 500 trading at 19 times expected earnings, surpassing the average of 15.6 times.

Markets

Oil advanced and European stocks were steady, as investors assessed the implications of a dramatic challenge to Vladimir Putin’s rule in Russia and its potential for further turmoil. After its near 4% slide last week, Brent crude rose 1% to $74.56 a barrel. Energy shares led early gains in Europe, while US equity futures ticked higher. A gauge of dollar strength was little changed, while gold rose slightly amid little sign of aggressive buying for its haven qualities. Asian shares were mixed as bourses in mainland China opened after a long weekend, amid continued concern over the nation’s economic recovery.

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

7:00 a.m.: Finland May PPI
10:00 a.m.: Germany June IFO Business Climate, IFO Expectations
10:00 a.m.: Poland May Unemployment
10:40 a.m.: SNB President Thomas Jordan speaks
12:00 p.m.: UK June CBI Retailing Reported Sales
12:00 p.m.: Bundesbank releases monthly report
2:50 p.m.: France to sell bills
4:25 p.m.: SNB’s Maechler speaks
ECB Forum on central banking
EU foreign affairs ministers meet in Luxembourg
French finance minister, Italian enterprise minister and German economy minister meet in Berlin
Energy Institute releases its global energy outlook

Corporate Events

Earnings include Carnival, L’Occitane

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