The Axiom IFS Update 2nd May 2023

Regulators seized First Republic Bank and sold its assets to JPMorgan Chase & Co on Monday, in a deal to resolve the largest U.S. bank failure since the 2008 financial crisis.

 

As British workers return to the office following the first of two long bank holiday weekends, they find themselves greeted by two new pieces of data painting with mixed implications for the UK economy. First the BRC shop price index, published just after midnight, showed an increase of 8.8% YoY. This is down from 8.9% seen in April, but still points to prices that are rising uncomfortably fast for the Bank of England. Meanwhile after several weeks of doom and gloom around the state of the US economy, yesterday’s ISM PMIs helped breathe a degree of optimism into markets, reigniting bets for a more hawkish Fed. The April release of the ISM manufacturing numbers beat expectations, rising to 47.1 against 46.8 expected and up from 46.3 previously, indicating a stronger US economy than anticipated. Barring any last minute surprises the market expects the ECB to raise interest rates this week but the longer term expectation is that there may be further rises in the Eurozone later in the year.

GBP.

Sterling is set for another quiet week with little economic data being released. With this lack of information, GBP is on thin ground and any GBPEUR movement will be driven by the common currency, similar to last week. UK PMI could prompt some volatility if it differs from initial estimates. The pound has opened this morning slightly lower against both USD and EUR but is likely to see an increase in volatility on both Wednesday & Thursday.

USD.

The Dollar is also expected to see increased volatility early this week, as both US Employment numbers & the Fed’s Interest rate decision are planned to be announced tomorrow. Whilst the market has already priced in the possible 25bps rate hike, investors will keep a keen interest in Jerome Powell’s speech as he touches on the Fed’s roadmap for tackling US Consumer Price Index.

EURO.

The Euro is likely to see an increase in trading volatility this week, with multiple economic data releases planned, as well as the European Central Bank delivering its next interest rate decision. The market expects the ECB to raise rates by 25-basis points but will focus on the ECB’s forward guidance. Economists also expect Euro Zone inflation to hold steady, above ECB targets, which could result in a stronger Euro. The Euro has started the trading session stronger against both GBP & USD.

CAD.

The Canadian dollar closed the North American trading session virtually unchanged, with an improving S&P manufacturing PMI for Canada and stronger ISM manufacturing data out of the US helping the loonie avoid losses seen in most other G10 currencies, despite a -1.4% move in the price of crude. Today could also be another quiet one for CAD, as no Canadian data releases are scheduled.

GOLD.

Gold prices stuck to a relatively narrow range on Tuesday as investors braced for hints on future interest rates from the U.S. Federal Reserve’s policy meeting. Spot gold was little changed at $1,981.79 per ounce by 0853 GMT, while U.S. gold futures were down 0.1% to $1,989.80.

STOCKS.

Global stocks wobbled and bond yields rose on Tuesday after Australia’s unexpected interest-rate increase showed central banks remain in inflation-fighting mode, cementing expectations for further policy-tightening in the US and Europe. European shares opened flat with HSBC Holdings Plc the standout gainer after a profit beat and a $2 billion share buyback. US equity futures seesawed between losses and gains after Monday’s government-brokered deal for JPMorgan Chase & Co. to acquire the troubled First Republic Bank.

CRYPTO.

Bitcoin hovers either side of $28,000 this morning – down about 5% since the end of last week. Traders await the Fed’s decision tomorrow and grapple with understanding the impact of the (relatively) quick rescue of First Republic Bank by JP Morgan – which dampens the case for cryptos in general if banking shocks can be dealt with by protecting deposit holders.

OIL.

Oil held steady loss as concerns over China’s economic outlook and caution in financial markets spurred by a banking crisis dominated sentiment. WTI held above $75 a barrel after dropping 1.5% on Monday. China’s recovery remains patchy with recent data pointing to a contraction in manufacturing. Still, tourism and travel activity soared on the first day of the country’s five-day Labour Day holiday, possibly signalling increased demand for fuels in the world’s largest crude importer.

 

 

 

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