March 10, 2023
“Investors are being cautious this morning as they wait for the release of the US jobs report for February. The report could have a significant impact on the US Federal Reserve’s outlook on interest rates. The payroll is expected to increase by 205,000, following a rise of 517,000 in January. The unemployment rate is expected to remain steady at 3.4%, which is the lowest rate in 53 years.”
Sam Cornford, Partner – Head of Trading
Joe Biden revealed his plan for government spending and higher taxes on the wealthy in Pennsylvania, a swing state, as part of his expected re-election bid in 2024. Biden challenged Republican opponents on fiscal responsibility and announced plans to cut US deficits by almost $3 trillion over 10 years by increasing taxes on individuals earning over $400,000 a year. Biden’s budget would raise federal spending in the next twelve months to $6.8 trillion, up from the expected $6.2 trillion for the current fiscal year.
Jeremy Hunt commented on official data showing a 0.3% month-on-month increase in economic output in January, stating that the British economy had been more resilient than many had anticipated despite severe global challenges. He further added that there is still a long way to go, and he will reveal the next stage of the government’s plan to “halve inflation, reduce debt and grow the economy” during next week’s spring budget.
Sterling is well bid against most major currencies overnight. The Office for National Statistics (ONS) reported that Britain’s economy expanded by 0.3% month-on-month in January, following a 0.5% drop in December. This reading is likely to allay recession fears in the short term, as growth in output exceeded forecasts due to a one-off boost from children returning to school after an illness-ridden December. The pound rose against the dollar and euro after the figures showed that growth was powered entirely by services, primarily due to the one-off bounce in the education sector.
Euro is stronger against the dollar and weaker against sterling this morning. The shares of UniCredit and Intesa Sanpaolo, two leading Italian banks, fell significantly due to concerns that lenders could face losses on their government bond portfolios following a sell-off in US and Asian banks. The rise in interest rates has diminished the value of those portfolios, and Italian banks are seen as particularly vulnerable since investors demand risk premiums to hold Italian paper instead of higher-rated German government bonds. Banks have minimized the hit to their capital reserves by classifying increasingly large portions of their bond portfolios among assets held to maturity, which allows them to avoid valuing them at current market prices.
The dollar is weaker than most major currencies in the early morning trade. The Bureau of Labor Statistics (BLS) will release the Nonfarm Payrolls (NFP) data today at 13:30 GMT, which is expected to show an increase of 205,000 jobs. Following the hawkish comments of Jerome Powell, the Chairman of the Federal Reserve (Fed), in his bi-annual testimony earlier this week, the US Dollar experienced a fresh bid wave and resumed its recovery. Powell said that the Fed would be prepared to increase the pace of rate hikes if the totality of the data indicated that faster tightening is warranted. Additionally, the ultimate level of interest rates is likely to be higher than previously anticipated.
European banking stocks faced their most significant one-day fall in nine months due to a sharp sell-off in US banks the previous day. Europe’s STOXX banking index dropped 4.2%, its most significant one-day slide since early June, with declines in most major names, including HSBC down 4.5% and Deutsche Bank down 7.9%. Yesterday, the S&P 500’s bank index finished down 6.6% after SVB Financial Group, a tech-industry lender, launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding.
Main Economic Data/Central Banks/Government (All Times CET)
8:00 a.m.: UK Jan. Monthly GDP, Industrial Production
8:00 a.m.: Germany Feb. CPI
8:00 a.m.: Turkey Jan. Industrial Production
9:00 a.m.: Czech Feb. CPI
10:00 a.m.: ECB’s Panetta Speaks
10:00 a.m: National Bank of Poland Publishes Inflation Report
2:30 p.m.: US Feb. Nonfarm Payrolls
5:00 p.m.: Russia Feb. CPI
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