June 28, 2023

“Some hawkish ECB officials are considering ways to speed up the reduction of the institution’s €5 trillion bond holdings, with opinions divided between exploring sales and gradually scaling back reinvestments of pandemic-era bonds.”

Sam Cornford – Head of Trading

Main Headlines

Wall Street banks and brokerages are in a last-minute scramble to meet a July 3 deadline to charge investors for research reports, bankers and others in the industry said, a requirement that threatens their European business if they fail to comply. Bank of America Corp and Jefferies Financial Group were among the earliest US banks to comply with the rules – but many others have not yet met the standards and are rushing to catch up.

UK banks are taking advantage of higher interest rates to increase their profits by charging borrowers more for loans. However, this boost might not last long due to the increase in bad debt, growing competition for deposits, and the pressure to share the gains with savers affected by inflation. John Cronin, a financial analyst at Goodbody, suggests that the negative consequences of higher rates might now outweigh the positive ones in the UK. The Bank of England’s base rate is currently at 5%, while the average interest on a two-year fixed-rate mortgage has reached 6.26%. In contrast, the average easy-access savings account pays around 2.36%.

GBP

Sterling is weaker than most major currencies in the early morning trade. BOE Governor Andrew Bailey is speaking at the ECB Forum on Central Banking in Portugal today, while most experts anticipate the Bank of England to raise borrowing costs at its July and September meetings. Traders closely analyse Bailey’s public engagements for hints about future monetary policies. British equities experienced a rise, following Wall Street’s gains, with software company Sage leading the way on the FTSE 100 index. Upbeat US economic data boosted global trading sentiment, easing worries of an imminent recession and driving the S&P 500 index over 1% higher.

EUR

The Euro is stronger against the Pound and has regained earlier losses against the Dollar this morning. UBS Group plans to cut over half of Credit Suisse’s workforce as part of a takeover, aiming to reduce the combined headcount by around 30%. Despite a sluggish euro zone economy, European Central Bank policymakers anticipate more interest rate hikes. The EU and UK signed an agreement to enhance cooperation on financial services, establishing a forum for regulatory discussions. The signing took place in Brussels between Jeremy Hunt, the British finance minister, and Mairead McGuinness, the European Commissioner for financial services.

USD

Dollar is well bid against most major currencies overnight. Chairman Jerome Powell will be delivering a speech today at the ECB forum on Central Banking in Portugal, which holds great significance for traders trying to decipher interest rate clues. Traders carefully analyse his public engagements as they often provide subtle hints about future monetary policies. In other news, the United States is contemplating imposing new restrictions on exports of artificial intelligence chips to China, with the Commerce Department expected to halt chip shipments as early as July. Nvidia, Micron, and AMD, whose shares took a hit yesterday, are among the U.S. chipmakers caught in the crossfire between China and the Biden administration.

Markets

European stocks opened firmer, while US equity futures were pressured by report of new curbs on artificial intelligence chip sales to China. The Stoxx Europe 600 Index gained as much as 0.5% as shares bounced from a six-day losing streak that ended on Tuesday. UBS Group AG advanced as the company prepared to cut more than half of Credit Suisse Group AG’s workforce. Share futures were mixed yesterday as investors awaited clues from top central bankers for direction of their monetary policies. European equity contracts gained 0.4% after the Stoxx Europe 600 Index had closed little changed on Tuesday, halting a six-day losing streak. US stock futures edged lower. The FTSE 100 and European stocks opened higher yesterday, stronger-than-expected US economic readings eased global growth concerns. The FTSE 100 rose 0.37% to 7,489 points at the open, while the CAC 40 Paris gained 0.65% to 7,262 points. In Germany, the DAX advanced 0.21% to 15,846.

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

8:00 a.m.: Germany July GfK Consumer Confidence
8:45 a.m.: France June Consumer Confidence
9:00 a.m.: Spain May Retail Sales
10:00 a.m.: Euro-Area May M3 Money Supply
10:00 a.m.: ECB’s Guindos speaks
11:00 a.m.: Italy June CPI
12:30 p.m.: ECB’s Lane and BOE’s Pill speak
2:30 p.m.: US May Wholesale Inventories
2:30 p.m.: ECB supervisory board chair Enria speaks
3:30 p.m.: Fed’s Powell, ECB’s Lagarde, BOE’s Bailey and BOJ’s Ueda speak
5:00 p.m.: ECB’s Lagarde speaks
6:00 p.m.: ECB’s Villeroy speaks
6:00 p.m.: Russia May Industrial Production, Unemployment
ECB Forum on Central Bank continues in Sintra, Portugal
Jeremy Hunt to meet UK regulators
Fed unveils bank stress test results

Corporate Events

Earnings include Micron, General Mills, Roivant
Bloomberg Sustainable Business Summit in London

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