Markets Report - 20 June 2023

A daily breakdown of the markets for the 20th June 2023, provided to you by Sterlex.

🇪🇺💶Germany’s Producer Price Index (PPI) rises by 1.0% for May versus 1.7% YoY expected and 4.1% prior whereas the monthly figures spread disappointment with -1.4% mark compared to -0.7% market forecasts and 0.3% previous readings. Furthermore, ECB Governing Council member Isabelle Schnabel also said, “Risks to the inflation outlook are tilted to the upside.” ECB’s Schnabel also cited the need to keep raising interest rates until seeing convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to 2%. European Central Bank (ECB) policymaker Peter Kazimir said on Monday, “We need to raise rates again in July.” On the same line, ECB Chief Economist Philip Lane said that another rate hike in July seemed appropriate but noted that the decision in September will depend on incoming data, per Reuters. It’s worth noting that statistics from Germany and the Eurozone have recently flagged concerns of the economic slowdown in the old continent and challenged the Euro bulls.

🇬🇧💷The GBP/USD pair attracts some sellers for the second successive day on Tuesday and remains on the defensive heading into the European session. Expect EUR/GBP to consolidate into tomorrow's big release of May UK CPI. And again we would see current levels in EUR/GBP as a good area to increase FX hedge ratios on GBP receivables. The pair currently trades around the 1.2775-1.2770 region, or a three-day low, still not far away from its highest level since April 2022 touched last Friday. As per the preliminary report, UK’s monthly headline inflation (May) is expected to show a pace of 0.4%, slower than the pace of 1.2% registered in April. the prior release of 8.7% while core inflation that excludes oil and food prices is seen steady at 6.8%. Annualized headline CPI is seen softening to 8.5% vs. We are probably reading too much into one day's price action, but it could be noticeable that Sterling did not follow Gilt yields higher yesterday. The UK 2-10 year Gilt curve is now the most inverted since 2000. The event of Brexit and early retirements taken by individuals have been crucial contributors to labor shortages, which forced firms to offer significantly higher payouts to offset the extreme demand for fresh talent. On Wednesday, the UK's Office for National Statistics will publish the Consumer Price Index (CPI) data for May.

🇺🇸 🏦In terms of US data, the focus will be on Housing Starts and Building Permits, accompanied by speeches from St Louis Fed member J Bullard, who holds voting rights in 2025 and leans hawkish, and NY Fed member J Williams, a permanent voter with centrist tendencies. Meanwhile, the likelihood of another 25 bps hike at the Fed's upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices. The greenback maintains alive the rebound from last week’s lows around the 102.00 neighbourhood for yet another session on Tuesday. The index remains optimistic during the first half of the week, maintaining its upward trend for the third consecutive session. This persistent strength is attributed to the ongoing fluctuations in the risk market.