May 10, 2023

“Volatility is expected to increase later today due to the release of April’s Consumer Price Index (CPI) data from the US. This will be closely scrutinised in light of the Federal Reserve’s indication last week that it may pause its rate hiking cycle. Analysts predict that the headline rate will remain steady at 5% year-on-year, while the core rate is anticipated to decrease slightly to 5.5% from 5.6%.”

Tim Hallinan – Trading Director

Main Headlines

US President Joe Biden and top lawmakers have agreed to further talks in an effort to break the deadlock over raising the $31.4 trillion debt limit. With just three weeks left before the possibility of an unprecedented default, Biden and House Speaker Kevin McCarthy met for about an hour in the Oval Office. They have committed their aides to daily discussions to find areas of possible agreement. The leaders are set to meet again on Friday.

The UK’s financial watchdog has announced that it will act quickly to punish serious breaches of new consumer protection rules set to come into effect at the end of July. The Consumer Duty requires firms regulated by the Financial Conduct Authority (FCA) to prioritize the interests of their customers. The new rules aim to ensure that financial services customers receive understandable information and products suited to their needs and offering fair value, with responsive after-sales customer support.

GBP

Sterling is well bid against most major currencies overnight. Top finance executives in Britain are calling on the government to broaden reforms aimed at attracting corporate listings, as London has seen a 40% decline in publicly-listed companies since 2008. The Edinburgh Reforms agenda, published late last year, comprising over 30 proposed changes to existing rules, is not enough to compete with growth in rival markets. Industry groups and finance executives are lobbying for more changes as the EU and US revamp their own capital markets to stay competitive.

EUR

Euro is weaker than most major currencies in the early morning trade. European Union states are holding a discussion on proposed new sanctions over Russia’s war in Ukraine that would target Chinese and Iranian firms, and allow export curbs on third countries that break existing trade restrictions. The talks are expected to be heated as Russia hawks are upset that the plan doesn’t go far enough, while others are wary of damaging international ties. The new sanctions aim to crack down on circumvention of existing Russia trade curbs and have been designed in close coordination with the Group of Seven (G7) nations.

USD

The dollar is stronger against euro and weaker against sterling this morning. After declining for nearly a year, US consumer price data to be released today is expected to show that inflation remained high in April, potentially indicating a new, more persistent phase of inflation. Economists predict that consumer prices are likely to have risen 0.4% from March to April, compared to a 0.1% increase the previous month. Prices are also projected to have jumped 5% from a year earlier, the same increase as in March, suggesting the first time in nine months that annual inflation did not fall.

Markets

European markets were muted in morning trading as investors await the latest US inflation data and its potential impact on the US Federal Reserve’s monetary policy. The pan-European Stoxx 600 index fell by 0.3%, with retail stocks seeing the biggest decline. While most sectors experienced a decline, bank stocks increased by 0.3%. Meanwhile, Asia-Pacific markets fell before the data release, while US stock futures were higher in early trading.

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

9:00 a.m.: Turkey March Industrial Output
10:00 a.m.: Italy March Industrial Production
10:00 a.m.: ECB’s Muller speaks
10:30 a.m.: Bank of Italy’s Banks and Money Monthly Statistics
11:00 a.m.: UK to sell bonds
11:30 a.m.: EU, Germany to sell bonds
1:20 p.m.: ECB’s Centeno speaks
2:30 p.m.: US April CPI
4:00 p.m.: ECB’s Centeno speaks
5:00 p.m.: Riksbank’s Bunge speaks
6:00 p.m.: SNB’s Jordan speaks

Corporate Events

Poland, Romania central banks hold monetary policy meetings

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