Morning Report

May 18, 2023

“The US Dollar remains strong amid a cautiously optimistic market sentiment. Recent hawkish comments from Federal Reserve officials contradict expectations of interest rate cuts later this year. Investors are monitoring the US debt ceiling developments and upcoming US data, including Initial Jobless Claims. Additionally, the prepared statements from ECB, Fed, and BoE officials will be closely monitored.”

Tim Hallinan – Trading Director


Main Headlines

President Joe Biden and top US congressional Republican Kevin McCarthy have expressed their determination to promptly reach an agreement to raise the US debt limit. Failure to reach a deal could lead to a disastrous default on the $31.4 trillion (£25 trillion) debt as early as 1st June. As a result of the impasse, President Biden had to curtail his overseas trip. If the debt ceiling is reached, the US government will be unable to borrow additional funds, resulting in the inability to pay the salaries of federal and military employees. This would also lead to the suspension of Social Security payments, which millions of pensioners in the US rely on.

British Prime Minister Rishi Sunak is scheduled to sign a groundbreaking “Hiroshima Accord” today during his meeting with Japan’s Prime Minister Fumio Kishida prior to a G7 summit. This accord aims to enhance defence cooperation between the UK and Japan, as stated by a press release from the UK government. As part of this agreement, both nations will also unveil the establishment of a “semiconductors partnership” aimed at fortifying the chip supply chain in an increasingly competitive market. The statement further highlights Sunak’s visit to a naval base, where he will confirm the new UK-Japan defence collaboration, which includes a doubling of UK troop numbers for forthcoming joint exercises.



Sterling is weaker than most major currencies in the early morning trade. Northern Ireland is conducting local council elections today, which the Democratic Unionist Party (DUP) views as a chance to strengthen its demand for additional concessions from Britain regarding a revised post-Brexit trade agreement. The DUP has stated that it will continue its 15-month boycott of Northern Ireland’s power-sharing government unless London introduces legislation to safeguard Northern Ireland’s unrestricted trade with the rest of the UK and provides greater flexibility regarding the trade agreement reached with the European Union in February to facilitate trade checks.



Euro is stronger against sterling and weaker against the dollar this morning. EU sources revealed that European Union foreign policy chief Josep Borrell has put forward a proposal to increase the funding of military aid for Ukraine by adding 3.5 billion euros ($3.85 billion) to the existing fund. The sources, speaking anonymously, stated that Borrell has requested EU member governments to raise the financial limit of the European Peace Facility (EPF), which has already allocated approximately 4.6 billion euros in military assistance to Ukraine. The proposal put forth by Borrell now awaits approval from the national governments of the EU. It is worth noting that these governments previously agreed in December that an increase could be justified “in case of need.”


The dollar is well bid against most major currencies overnight. US commercial real estate prices experienced their first quarterly decline in over a decade, posing a greater risk of financial strain within the banking industry, as reported by Moody’s Analytics. The less-than-1% decrease was primarily driven by drops in multifamily residences and office buildings. This situation compounds the challenges faced by banks, who are already struggling to retain deposits amidst a significant increase in interest rates over the past year. Excluding farms and residential properties, banks held over 60% of the $3.6 trillion outstanding in commercial real estate loans in Q4 2022.


European markets started the day on a positive note as talks regarding the US debt ceiling showed signs of progress. The pan-European Stoxx 600 index rose by 0.5%, with the majority of sectors trading in positive territory. Auto stocks led the modest gains with a 1.4% increase, followed by a 1.1% uptick in the technology sector. However, utility stocks experienced a slight dip of 0.2% during morning trading. Meanwhile, Wall Street sentiment remained subdued. In Asia-Pacific, markets saw overnight gains, driven by hopes that US President Joe Biden and congressional leaders were making headway towards a deal to raise the US debt ceiling and avert a default.


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

8:35 a.m.: ECB’s Guindos speaks
9:00 a.m.: ECB’s Muller speaks
9:45 a.m.: BOE’s Pill speaks
10:00 a.m.: ECB publishes Economic Bulletin
11:15 a.m.: BOE’s Bailey testifies on QT
12:00 p.m.: Portugal April PPI
2:30 p.m.: US Initial Jobless Claims
3:05 p.m.: Fed’s Jefferson speaks
3:30 p.m.: Fed’s Barr speaks
4:00 p.m.: US April Leading Index, Existing Home Sales
4:00 p.m.: Fed’s Logan speaks


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