Morning Report

June 30, 2023

“June Eurozone inflation data and US PCE inflation figures due today will be closely watched. Consensus is for a softer PCE figure, boosting market expectations that the FED will hike only once more this year.

Sam Cornford – Head of Trading

Main Headlines

Today, the Core PCE Price Index will be released, representing the change in the price of goods and services purchased by consumers excluding food and energy. This index serves as the Federal Reserve’s primary measure of inflation and gives a good indication of how they will proceed. Investors are using the Federal Reserve’s cash parking facility less, opting instead to increase their holdings of government debt. Recently, they stored only $1.93 trillion in the Fed’s overnight reverse repo facility, the lowest amount in a year and a decrease of over $200 billion this month. Money market funds in the US, managing $4.5 trillion, prioritize providing clients with a secure and easily accessible product that offers stable returns.

The European Central Bank is determined to keep raising interest rates due to the UK’s persistent high inflation. Senior policymakers are concerned about accusations of not controlling price pressures, taking note of the criticism faced by the Bank of England for its own struggle in reducing inflation. These discussions took place during the ECB’s annual conference in Sintra, Portugal. Germany reported higher-than-expected inflation, while Spain experienced a drop in inflation below 2% for the first time in almost two years. The significant divergence between Germany’s 6.8% inflation rate in June, which was over four times higher than Spain’s 1.6% rate, highlights the ECB’s dilemma in managing inflation effectively.


Sterling performed well against most major currencies overnight. According to the Office for National Statistics, the UK’s economy grew by 0.1% in the first quarter of this year, unchanged from the initial estimate. However, the ONS also reported that the country’s gross domestic product in the same period was 0.5% smaller than it was before the COVID-19 pandemic, aligning with a previous estimate. Barratt Developments, the largest housebuilder in Britain, has agreed to sell 604 homes to Citra Living, a private rental subsidiary of Lloyds. The cash transaction is valued at £168.4 million ($212.57 million). Barratt aims to diversify its revenue sources through this deal. Approximately 500 homes will be transferred to Citra’s ownership by June 2024, with the remaining homes transferred the following year. The sale comes amid expectations of a slower recovery in the UK housing sector due to ongoing interest rate hikes, which are anticipated to impact demand.


The Euro is trading weaker than most major currencies this morning. Following higher-than-expected inflation in Germany for June, attention is now focused on upcoming inflation reports for the euro zone and France. Investors are curious to determine if the German data was an isolated incident or indicative of a larger issue. Economists surveyed by Reuters anticipate a decline in the euro zone inflation rate from 6.1% in May to 5.6% in June. In the Netherlands, a significant overhaul of the private pensions system is causing asset managers to reconsider how they invest the substantial amount of retirement savings, totalling 1.5 trillion euros ($1.64 trillion). The reform, effective from Saturday, may result in a shift away from euro zone government bonds towards riskier assets and a change in how these funds protect themselves from interest rate fluctuations. In May, approved changes indicated that pension funds would no longer guarantee benefits if they faced difficulties meeting payouts during the previous decade of negative rates.


The dollar showed strength against the euro but weakened against the sterling this morning. US bank stocks experienced an increase yesterday following the Federal Reserve’s annual health checks, which demonstrated that lenders could withstand an economic downturn. This alleviated investor concerns after the failures of Silicon Valley Bank and two other lenders earlier this year. However, analysts remain doubtful that this strong performance will result in larger dividends and share buybacks due to forthcoming regulations and economic uncertainties. They anticipate limited share buyback activity for the rest of 2023, given the banking crisis prompting a more cautious approach.


European stocks gained and US futures wavered as the second quarter drew to a close. Bonds steadied after a selloff sparked by robust US economic growth and jobs data that fuelled bets on more interest rate hikes. Those wagers will be tested by a raft of price measures due Friday, including euro-area inflation and US figures on personal income and spending, as well as the PCE deflator, the Federal Reserve’s preferred gauge of underlying price pressures. The US numbers are expected to show some softening while still indicating inflation remains sticky.

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

6:30 a.m.: Netherlands June CPI
8:00 a.m.: UK 1Q GDP, June Nationwide House Prices
8:00 a.m.: Germany May Retail Sales, Import Prices
8:45 a.m.: France June CPI
9:00 a.m.: Czech 1Q GDP
9:55 a.m.: Germany June Unemployment
10:00 a.m.: Italy May Unemployment
10:00 a.m.: Norway June Unemployment
10:00 a.m.: Poland June CPI
11:00 a.m.: Euro-area June CPI, May Unemployment
12:00 p.m.: Portugal June CPI
2:30 p.m.: US May Personal Income, Spending

Corporate Events

Earnings include Constellation Brands


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