Morning Report

June 29, 2023   

“The Fed’s annual stress test confirmed the banking system’s strength. It demonstrates that banks can weather challenging economic conditions and continue providing lending support. Today’s focus will be on the US GDP and unemployment figures, released this afternoon.” 

 Tim Hallinan – Trading Director 

Main Headlines  

The Federal Reserve released the results of its annual bank stress test, which showed the strength and resilience of the banking system. The test demonstrates that large banks can withstand a severe recession and continue lending to households and businesses. In the financial markets, some parts of the US Treasury yield curve have inverted, indicating concerns about an economic slowdown as the Federal Reserve considers raising interest rates. The stress test evaluates banks’ ability to support the economy during downturns by assessing their capital levels, potential losses, and revenue and expenses. It’s important to remain vigilant about risks and ensure banks are prepared for different economic scenarios and market shocks. 

Yesterday, Christine Lagarde, President of the European Central Bank, urged persisting with high interest rates to prevent prices from exceeding the target due to tight labour markets and rising wages. The ECB has made progress in addressing high inflation, but victory cannot be declared yet. Today, we will find out if the inflation data supports those positions. Germany, Spain, and Denmark will report their CPI figures for June, and tomorrow the U.S. will provide the final reading of the core PCE price index for the first quarter. Additionally, on Friday, Tokyo will release consumer price data, which is an important indicator for Japan’s nationwide figures that will come later. 


Sterling is holdings reasonably steady in morning trade. Wealthy UK investors are rushing to buy tax-free gilts as yields rise, according to new data. Direct bond trading has increased almost tenfold this year compared to 2022, with most of the activity focused on gilts. The FTSE 100 opened slightly lower today as central bankers signalled potential policy tightening. Serco Group saw its shares jump after raising its annual earnings outlook. The heads of major central banks confirmed the need for further interest rate hikes to combat high inflation. 


The euro has regained earlier losses to the USD and remains parred to the sterling. In June, German inflation is expected to rise to 6.8% from 6.3% in May, but experts suggest this could be the highest point for the year. Consumer prices play a significant role in overall inflation. The ECB will also release the Economic Bulletin, which contains statistical data used by the Governing Board to make interest rate decisions and provides an analysis of current and future economic conditions. Spain’s consumer prices rose 1.9% year-on-year in June, the slowest increase since March 2021, according to preliminary data from the National Statistics Institute. Spain is the first major eurozone economy to have inflation drop below the European Central Bank’s 2% target. Italy recorded a harmonized 12-month inflation rate of 6.7% in June, while data for France and Germany is not yet available. Spain’s 12-month inflation was lower than the 3.2% increase in May but higher than the expected 1.7%. 


Dollar was well bid against most major currencies overnight but has given up most gains in morning trade. Later today, the Bureau of Economic Analysis will release the second-quarter GDP reading, which provides a broad measure of economic activity and reflect the economy’s health. The figure is expected to tick up slightly to 1.4%. Bank of America’s decision three years ago of putting most of the $670 billion they received from pandemic-related deposits into debt markets has proved costly. At the time, bond prices were very high, and yields were low and as a result, BoA faces significant losses. By the end of the first quarter, they had over $100 billion in paper losses. This is considerably larger than the losses reported by other big banks.   


European and US stock futures fluctuated in narrow ranges Thursday while the dollar rose as traders continued to parse hawkish comments from central bankers that point to more rate hikes. A gauge of greenback strength was higher for a second day after Jerome Powell signalled the Federal Reserve may raise rates at the next two meetings after June’s pause. The yen and the yuan were also in focus amid concern from authorities in Japan and China about weakness in their currencies. 

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

9:00 a.m.: Spain June CPI
9:30 a.m.: Riksbank Rate Decision
10:00 a.m.: ECB publishes Economic Bulletin
10:30 a.m.: UK May Mortgage Approvals
11:00 a.m.: Euro-Area June Economic, Consumer Confidence
12:00 p.m.: Fed’s Bostic speaks
2:00 p.m.: Germany June CPI
2:30 p.m.: US 1Q GDP
4:00 p.m.: US May Pending Home Sales
6:30 p.m.: BOE’s Tenreyro speaks
EU leaders’ summit in Brussels
Holidays in India, Singapore, Malaysia, Indonesia 

Corporate Events 

Earnings include H&M, Nike, McCormick & Co., Paychex
Global Bank Payments Summit in Cape Town 


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