June 8, 2023

“The USD weakened this morning, but received some support from increased US Treasury yields as traders considered the potential for another interest rate hike by the US Federal Reserve, even if it takes a pause next week. In the Eurozone, an updated assessment of the first-quarter GDP is expected today, with the anticipation that it will be adjusted slightly downward.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Wall Street is gearing up for a fresh regulatory battle concerning how clients pay for investment research as the temporary relief from Europe’s strict MiFID II rules, which they had previously benefited from, is set to expire next month. Securities firms in the United States cannot rely on an extension of the relief granted by the Securities and Exchange Commission to mitigate the impact of European Union regulations, stated agency Chair Gary Gensler on Wednesday. The EU rules necessitate brokers to separately charge clients for analysis on stocks and bonds, a setup that industry executives warned would lead to additional compliance costs in the US.

In May, UK house prices experienced their first annual decline in over a decade as potential buyers faced higher mortgage rates, as reported by Halifax, a lending institution. Data released yesterday revealed that property prices were down by 1 percent compared to May 2022, marking the first annual fall since December 2012. The Bank of England stated that the average rate for new mortgages rose to 4.5 percent in April, the highest level since 2008. Market expectations anticipate the central bank to raise interest rates once again at the upcoming monetary policy meeting on June 22, from 4.5 percent to 4.75 percent, with further increases above 5 percent projected by the end of the year.

GBP

Sterling is well bid against most major currencies this morning. The BT Pension Scheme, valued at £40 billion, intends to invest in private credit, following the trend among funds in the sector seeking to capitalize on banks’ growing reluctance to lend. Over the past 15 months, rising interest rates have prompted banks to curtail their lending activities, creating opportunities for institutional investors such as pension schemes to bridge the funding gap. Real-time data reveals that wage growth in the UK accelerated in May, despite a cooling job market, underscoring the challenge faced by the Bank of England in bringing inflation back to its target level.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Germany’s Interior Minister, Nancy Faeser, expressed that although EU countries could potentially reach an agreement on a migration deal on Thursday, the proposed compromise needs improvement. The World Bank will provide support to Ukraine by conducting a rapid assessment of the damage and needs resulting from the destruction of a massive hydroelectric dam on the front lines between Russian and Ukrainian forces. The EU is contemplating the implementation of a mandatory ban on member states utilizing companies considered to pose a security risk in their 5G networks.

USD

The dollar is weaker than most major currencies in the early morning trade. Smoke from Canadian wildfires has drifted south, shrouding cities along the US East Coast, leading schools to cancel outdoor activities, airlines to reduce traffic, and urging millions of Americans to stay indoors. The US, Taiwan and Japan are to share real-time data from naval reconnaissance drones, demonstrating Washington’s push to strengthen co-ordination in the event of a Chinese attack on Taiwan. US defence contractor General Atomics is due to deliver four MQ-9B Sea Guardian drones to Taipei beginning in 2025.

Markets

US futures slipped and Treasuries held their sharp move from the previous session, after a surprise Bank of Canada rate increase led traders to reassess the risks from stubborn inflation. Tech shares are bearing the brunt of jitters over higher rates. Nasdaq 100 dropped 0.4%, signalling more losses after the index suffered its worst day since April. Treasury yields ticked higher after an increase across the curve Wednesday that added 14 basis points to the 10-year benchmark.

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

8:00 a.m.: Saudi Arabia 1Q GDP
8:00 a.m.: Sweden May Budget Balance
8:30 a.m. Hungary May CPI, April Trade Balance
11:00 a.m.: Euro-area 1Q GDP
12:00 p.m.: Serbia central bank decision
1:00 p.m.: South Africa April Manufacturing Production
2:30 p.m.: US Initial Jobless Claims
Bank of Italy reports on balance-sheet aggregates

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