May 24, 2023

“Today, the pound strengthened as UK inflation came in higher than expected for April, increasing the likelihood of further rate hikes from the BoE. The year-on-year inflation rate decreased from 10.1% in March to 8.7%, above the forecast. Governor Bailey’s speeches today will be closely watched for indications on how the central bank will proceed.”

Tim Hallinan – Trading Director

Main Headlines

Florida Governor Ron DeSantis, known for his confrontations over pandemic measures and his ongoing feud with the Disney Corporation, will declare his candidacy for the Republican presidential nomination. His announcement will coincide with a Twitter discussion with Elon Musk, CEO of Twitter, and Tesla, and he will also file the necessary paperwork with the Federal Election Commission. In other news, Debt ceiling talks between President Joe Biden’s representatives and congressional Republicans ended without progress as the deadline to raise the government’s borrowing limit nears. The parties remain divided on addressing the federal deficit, with Democrats pushing for increased taxes on the wealthy and businesses, while Republicans focus on spending cuts. Treasury Secretary Janet Yellen warned of potential default and adverse effects on the U.S. economy, along with higher borrowing costs, if the government doesn’t have enough funds to meet its obligations by June 1.

Britain’s Competition and Markets Authority (CMA) has provisionally discovered that five major global banks, including Citi, Deutsche Bank, HSBC, Morgan Stanley, and Royal Bank of Canada, potentially violated UK competition law by exchanging sensitive information on government bond trading activities through one-to-one online chats. The CMA alleges that these banks unlawfully shared information during individual conversations in Bloomberg chatrooms between a small group of traders at different points between 2009 and 2013. In other news, from January 2025, listed companies in Britain may face stricter obligations to prove to investors their effective safeguards against fraud for ensuring accurate financial reports. The proposal comes from Britain’s corporate governance watchdog, following government-initiated reviews prompted by the collapses of BHS and Carillion. These reviews led to recommendations for improved internal controls and enhanced audit quality in companies.

GBP

Sterling is stronger against the Dollar and weaker against the Euro this morning. Britain’s high inflation rate fell less than expected last month, while a key measure of price growth surged to a 31-year high, reinforcing expectations of more Bank of England interest rate hikes. The consumer price index rose by 8.7% annually in April, matching Italy as the highest inflation rate among advanced economies in the Group of Seven. Economists had predicted a drop to 8.2% in the annual CPI rate for April, further away from the 41-year high of 11.1% in October. The Bank of England had previously forecasted an 8.4% inflation rate for April. Later today, Bank of England Governor Andrew Bailey will give two speeches: one at the Net Zero Delivery Summit and another at the Wall Street Journal’s CEO Council Summit. As the head of the central bank, Bailey’s influence over Sterling’s value and control over short-term interest rates make his public appearances closely watched by traders for clues on future monetary policy.

EUR

The Euro is well bid against most major currencies overnight. Today, several reports from the Eurozone are being released. The German ifo Business Climate report, which is based on surveys of various sectors, has already been published. This report is highly regarded for its large sample size and historical correlation with German and Eurozone economic conditions, often impacting the market significantly. The actual reported value of 91.7 deviates from the forecasted 93.0, potentially signalling a departure from the previous five months of higher-than-expected reports. We are also anticipating the National Bank of Belgium Business Climate Report, which shares similarities with the report. This report measures a composite index based on surveys from manufacturers, builders, services, and trade-related firms. The current forecast is -6.0 and given the mixed reporting over the past five months, we will observe if the downward trend persists or if a positive shift emerges.

USD

The Dollar is weaker than most major currencies in the early morning trade. Today, we can expect significant communications regarding the Dollar. Firstly, US Treasury Secretary Janet Yellen will deliver a speech titled “The U.S. Economy” at the Wall Street Journal’s CEO Council Summit, where she will likely address policy shifts and potentially cause market volatility. Additionally, the Federal Open Market Committee meeting minutes, a detailed record of the latest FOMC meeting, will be released later, providing insights into economic conditions and interest rate decisions. Lastly, the US Crude Oil inventories will be published, indicating changes in supply and demand that can impact production levels and price volatility. It’s worth noting that last week’s forecast differed from the actual numbers, so we will see if this trend persists.

Markets

Stocks retreated and US equity futures wavered as an impasse in negotiations over raising the US debt ceiling hurt risk sentiment. Bond yields rose across Europe after UK inflation data raised another red flag on global price pressures. The Stoxx Europe 600 index fell for a second day, led by real estate and consumer products after data showed UK price increases remain much stronger than expected. The pound gained and UK bond yields soared, dragging other European rates and Treasury yields higher in their wake. US equity futures were flat.

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

7:45 a.m.: Riksbank’s Jansson speaks
8:00 a.m.: UK April CPI
10:00 a.m.: Germany May IFO survey
10:00 a.m.: South Africa April CPI
11:30 a.m.: BOE’s Bailey speaks
1:00 p.m.: Riksbank’s Floden speaks
3:00 p.m.: BOE’s Bailey speaks
7:45 p.m.: ECB’s Lagarde speaks
Nigeria GDP
Nigeria Rate Decision

Corporate Events

Earnings include Analog Devices, Nvidia

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