Morning Report April 21, 2023

“Unexpectedly, UK household confidence has exceeded projections, thanks to increasing optimism about personal finances. UK Flash Manufacturing and Services PMI results data was a mixed bag with manufacturing falling short of the forecast by 1.7 points and services exceeding the forecast by 2.0 points. This indicates that while some sectors of the economy are still trailing behind market predictions, others are showing slight growth beyond projections.”

Tim Hallinan – Trading Director

Main Headlines

The cost of insuring exposure to U.S. debt reached its highest level in over a decade on Thursday, as market concerns over the U.S. debt ceiling stirred jitters. JPMorgan also issued a warning of a “non-trivial risk” of a technical default on U.S. Treasuries. The ongoing showdown over the U.S. government’s efforts to raise the $31.4 trillion debt ceiling for the world’s largest economy has created unease in global financial markets. As fears mount that the deadline to raise the borrowing limit may arrive earlier than anticipated, some U.S. Treasury bill yields have reached fresh highs.

The Financial Conduct Authority (FCA), the regulatory body overseeing financial services in the UK, put forth proposals on Friday to reduce the cost of insuring residential apartment blocks, citing the need to prevent the improper use of commission. The FCA’s proposal includes requirements for insurers to prioritize the best interests of leaseholders, and a ban on brokers from recommending policies based on the amount of commission they receive. The proposals follow a review after the fire in Grenfell Tower, London, in 2017 that lead to large spikes in building insurance rates.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK household confidence surged beyond projections, hitting its highest level since the beginning of the war in Ukraine, buoyed by increasing optimism about personal finances. GfK’s sentiment index experienced an unforeseen rise of six points to reach minus 30 in April, marking a 14-month peak and the third consecutive improvement. This morning was the British Flash Manufacturing and Services Purchasing Managers index data, which is a survey of around 650 purchasing managers in Britain and is a leading indicator of the private sector’s view of economic health. It showed Manufacturing lower than the forecast and Services higher.

EUR

The Euro is stronger against Sterling and weaker against the Dollar this morning. The G7 is reportedly discussing a near-complete ban on exports to Russia ahead of their upcoming summit in Japan, according to Japanese government sources cited by Kyodo news agency. The United States and Ukraine’s allies are also considering an outright ban on most exports to Russia. In other news, today was the release of the European Flash Manufacturing and Flash Services Purchasing Managers Index, which is a Survey of about 5,000 purchasing managers that asks respondents to rate the relative level of business conditions. It’s a leading indicator of economic health as businesses are the first line of information to market conditions, and it shows a private sector view of the economy. The Flash Manufacturing actual was lower than the forecast by 2.4 points, while the Flash Services actual was higher than the forecast by 2.0 points.

USD

The Dollar is well bid against most major currencies overnight. US banks have recently increased their emergency borrowings from the Federal Reserve, suggesting that ongoing stresses continue to impact the financial system. In the week ending April 19, both lending from the “discount window” and the newly implemented Bank Term Funding Program reached $143.9 billion, compared to $139.5 billion in the previous week. In other news, the Federal Reserve officials lent their support for an interest rate hike but acknowledged the possibility of a future pause. Cleveland Fed President Loretta Mester, known for her hawkish stance, emphasized the importance of pushing rates above 5%, while also cautioning about the impact of tighter credit conditions. Raphael Bostic expressed his endorsement for a pause after one more hike, and Patrick Harker noted that rates are steadily approaching a suitable level.

Markets

European stocks and US futures struggled for direction amid mixed corporate earnings and as traders awaited key manufacturing data on both sides of the Atlantic. The Stoxx Europe 600 index was little changed at the open. Mining stocks lagged as iron ore fell to the lowest since December, with Rio Tinto Plc down more than 3%. SAP AG, Europe’s biggest software company, declined after forecasting profit just slightly ahead of analyst’s estimates. Carmaker Mercedes-Benz AG gained after an earnings beat.

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

8:00 a.m.: UK March Retail Sales
9:00 a.m.: ECB’s Guindos speaks
9:15 a.m.: France April S&P Global PMIs
9:30 a.m.: Germany April S&P Global/BME PMIs
10:00 a.m.: Euro-area April S&P Global PMIs
10:00 a.m.: Norway’s Wealth Fund publishes 1Q results
10:00 a.m.: ECB’s Vujcic speaks
10:30 a.m.: UK April S&P Global/CIPS PMIs
11:00 a.m.: Italy to sell bonds
12:00 p.m.: UK to sell bills
3:45 .m.: US April S&P Global PMIs
4:30 p.m.: ECB’s Elderson speaks
7:45 p.m.: ECB’s Guindos Speaks
UK Sovereign Rating to be reviewed by Moody’s, S&P

Corporate Events

Earnings include P&G, Schlumberger, Sandvik

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