May 3, 2023

“The dollar fell this morning ahead of the Fed’s expected 25bp interest rate hike this evening as gloomy jobs data, a standoff over the US debt ceiling and nervousness following banking collapses cloud the investment outlook.”

Tim Hallinan – Trading Director

Main Headlines

The US Federal Reserve is anticipated to implement a quarter-point rate increase today, marking its 10th consecutive hike in slightly over a year. The pressure on the central bank to cease its assertive monetary tightening initiative has been mounting. The Federal Open Market Committee is expected to increase its benchmark policy rate to a new target range of 5-5.25 per cent, the highest level since mid-2007, at the conclusion of its two-day meeting. The meeting occurs during a tense period for the US economy and financial system, with mid-sized lenders still reeling from a series of bank collapses. Officials must grapple with balancing a potential credit contraction caused by the banking crisis with the fact that inflation remains persistently high, and price pressures are gradually moderating.

Despite opposition from the main nursing union, the UK government will implement a pay deal for NHS England workers. The offer, which was accepted by a majority of staff representatives, will give staff one-off payments worth up to £3,789 for 2022-23 and a 5% wage increase for 2023-24. Health secretary Steve Barclay said the vote at the NHS Staff Council, which brings together unions, employers, and the government, demonstrated that “a majority of NHS staff agree this is a fair and reasonable deal.”

GBP

Sterling is well bid against most major currencies this morning. Lloyds beat first quarter profit forecasts with the help of interest rate rises, but early signs of stress among borrowers suggest tougher times ahead. After a sharp selloff in the previous session, UK stocks rose on Wednesday, with markets eagerly anticipating the US Federal Reserve’s interest rate decision later in the day. The UK’s financial regulator is proposing significant changes to IPO rules to better compete with New York and Asian hubs, including replacing its premium and standard listing categories to make it easier for companies to have two classes of shares. However, the FCA notes that any reduction in rules would diminish investor protections, and a wider public debate is needed.

EUR

Euro is stronger against the dollar and weaker against sterling this morning. Eurozone inflation rose slightly in April, but analysts predict that the European Central Bank will still slow the pace of its interest rate rises this week, due to a sharp retreat in bank lending and a dip in underlying price pressures. A Russian spy network has acquired sensitive technology from EU companies to fuel Vladimir Putin’s war in Ukraine, despite a US-led crackdown on the covert smuggling ring. Italy’s right-wing government is scaling back a poverty relief scheme and making it easier to hire workers on a short-term basis, in response to complaints from employers about the difficulty and costs of recruitment.

USD

The dollar is weaker than most major currencies in the early morning trade. US investor interest in Chinese stocks has significantly cooled, as political tensions between the two countries grow. Morgan Stanley is in talks with US prosecutors and regulators to resolve a probe into its block trading practices, which are alleged to have involved sharing or using information about impending deals in violation of securities regulations. The firm has dismissed two bankers. Private equity firm owned by Jeb Bush held talks with the owners of Israeli spyware company NSO Group over a deal that would have seen the former Florida governor sell its products in the US.

Markets

European stocks and US futures advanced, bouncing from Tuesday’s losses, ahead of a Federal Reserve meeting at which policymakers are expected to extend their rate-hike cycle. The Stoxx Europe 600 Index rose, with energy shares rebounding and UniCredit SpA climbing after boosting its profit and payout targets. Contracts on the S&P 500 and the Dow were higher, after underlying stocks slid on Tuesday on renewed concerns about the health of the banking sector. The dollar weakened.

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

9:00 a.m.: Turkey April CPI, PPI
10:00 a.m.: Italy March Unemployment
11:00 a.m.: Euro-Area March Unemployment Rate
2:15 p.m.: US April ADP Employment Change
4:00 p.m.: US April ISM Services Index 10:30 a.m.:
4:30 p.m.: EIA US crude oil inventories
8:00 p.m.: Fed Rate Decision
8:30 p.m.: Fed’s Powell speaks

Corporate Events

Earnings include Airbus, Lufthansa, Qualcomm, CVS Health, Estee Lauder, Etsy, Exelon, Equinix, Kraft Heinz, MetLife, Marathon Oil, Noble Corp., Mosaic Co., Oak Street Health, Phillips 66, WWE, Zillow

Stellantis reports 1Q sales and shipment figures

 

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