June 01, 2023

“The U.S. House of Representatives successfully passed the bill to suspend the debt ceiling, providing temporary relief. Today, our focus turns to important reports and addresses from across the Globe, including Manufacturing PMIs from various Eurozone countries, a speech from Christine Lagarde, the President of the European Central Bank, and the Unemployment Claims report from the U.S. Department of Labour.”

Tim Hallinan – Trading Director

Main Headlines

The U.S. House of Representatives, divided on the matter, passed a bill to suspend the $31.4 trillion debt ceiling on Wednesday. The legislation received majority support from both Democrats and Republicans, aiming to prevent a catastrophic default and overcoming opposition from hard-line conservatives. The House voted 314-117 to send the bill to the Senate, which must also pass it and deliver it to President Biden before the Monday deadline, when the federal government was expected to exhaust funds to pay its obligations. The legislation suspends the federal government’s borrowing limit until January 1, 2025, allowing the issue to be postponed until after the November 2024 presidential election. Additionally, the bill includes measures such as capping certain government spending for the next two years, expediting the permitting process for specific energy projects, reclaiming unused COVID-19 funds, and expanding work requirements for additional recipients of food aid programs.

A recent poll revealed that the Bank of England is expected to adopt a significantly more aggressive approach to policy tightening than previously anticipated. This shift comes as the bank strives to curb persistently high inflation, which is currently at the highest level among the advanced economies of the Group of Seven. Official data indicates that consumer prices rose by 8.7% in annual terms last month, slightly lower than March’s 10.1% but higher than the 8.2% forecasted in the poll. Furthermore, a closely monitored gauge of core price increases reached a 31-year peak, as reported by the official data preceding the poll. In other news, Bank of England policymaker Catherine Mann warned of a larger inflation problem in Britain compared to the United States and the euro zone. She emphasized significant increases in headline prices and persistent underlying pressures. Mann, a proponent of interest rate hikes, expressed concerns about potential financial market volatility during the global economy’s adjustment to higher borrowing costs.

GBP

Sterling is stronger against the Euro and weaker against the Dollar this morning. According to mortgage lender Nationwide, British house prices experienced the largest annual decline since 2009, falling by 3.4% in the 12 months leading up to May. This follows a 2.7% drop in April. Additionally, house prices in May showed a slight decrease of 0.1% compared to April. The housing market is expected to face further challenges due to recent increases in borrowing costs. It is worth noting that the housing market had shown signs of recovery earlier in 2023 after a surge in mortgage rates triggered by former Prime Minister Liz Truss’s tax cut plans, which caused turbulence in financial markets. Also, according to job search website Adzuna, starting salaries advertised in Britain reached their highest level in two years in April. The survey indicated that there was also an increase in job vacancies and advertised annual salaries have been consistently rising since October 2022, reaching a 2.9% increase compared to the previous year.

EUR

The Euro is weaker than most major currencies in the early morning trade. Today, we are anticipating multiple reports from the Eurozone. Firstly, we will receive the Consumer Price Index Flash Estimate, which measures changes in consumer prices, playing a crucial role in overall inflation. It will be interesting to observe the outcome, as the forecasted and reported figures are identical, indicating a positive trajectory for future inflation. We will also be receiving the Manufacturing Purchasing Managers Index’s from a number of Eurozone states, such as France, Italy, and Germany, which will measure the level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. Additionally, we will hear from Christine Lagarde, the President of the European Central Bank, as she is scheduled to speak at the German Savings Banks Conference in Hannover. Traders often experience volatility during her speeches as they attempt to interpret potential clues regarding interest rates.

USD

The Dollar is well bid against most major currencies overnight. Today, we anticipate the release of several significant reports from various sources. First, we are eagerly awaiting the Unemployment claims report from the US Department of Labour. The forecast for this report is 236K. Interestingly, based on previous reports, it has been observed that three out of the last five reports had lower numbers than their respective forecasts. Therefore, it will be intriguing to see if this trend persists. Later in the day, we will also receive the Institute for Supply Management PMI, which assesses the level of a diffusion index. This index is derived from a survey conducted among 300 purchasing managers in the manufacturing industry. The survey asks respondents to evaluate the relative level of business conditions. For the last 5 months the forecasted numbers for this report have been lower than the actual figures, with the exception of the previous month, so we will see if this is an anomaly or if we have begun to buck this trend going forward.

Markets

Stocks rose, with investors in a more optimistic mood after the House passed a deal to avert a US default and Federal Reserve officials hinted at a pause in interest-rate hikes. Miners and media companies led gains as European equities looked to snap three days of declines. The advance echoed a move higher in Asian stocks, where markets got an initial boost from some encouraging economic data out of China.

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

9:50 a.m.: France May HCOB PMI Manufacturing
9:55 a.m.: Germany May HCOB PMI Manufacturing
9:55 a.m.: ECB’s Knot speaks
10:00 a.m.: Euro-area May HCOB PMI Manufacturing
10:00 a.m.: Italy April Unemployment
10:00 a.m.: Norway May DNB/NIMA PMI Manufacturing
10:30 a.m.: UK April Mortgage Approvals, May S&P Global/CIPS PMI Manufacturing
11:00 a.m.: Euro-area May CPI, April Unemployment
11:30 a.m.: ECB’s Lagarde speaks
1:30 p.m.: ECB minutes
2:15 p.m.: US May ADP Employment Change
2:30 p.m.: ECB’s Villeroy speaks
3:45 p.m.: US May S&P Global Manufacturing PMI
Italy May Budget

Corporate Events

Earnings include Broadcom, Dell, Dollar General, Lululemon, VMware

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