June 21, 2023

Daily Report 21/06/2023

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After a surge to fresh 15-year highs on Monday, there was a retreat in UK yields on Tuesday with the 2-year yield dipping to below the 5.00% level. Lower yields undermined Sterling and there was also a significant element of position adjustment ahead of Thursday’s bank of England policy decision. UK consumer prices increased 0.7% for May with the year-on-year rate unchanged at 8.7% and compared with expectations of a decline to 8.4%. The core rate also increased to 7.1% from 6.8% and above expectations of 6.8%. The data reinforced expectations that the Bank of England would have to be aggressive in raising interest rates.

Key Data 

7.00 Consumer Price Index (YoY) (May) Act. 8.7% Exp. 8.4% Prev. 8.7%

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On Tuesday, ECB council member Villeroy stated that the duration of the terminal rate is more important than the level. The comments overall, therefore, suggested that the ECB will be looking to maintain higher interest rates for longer. Council member Simkus stated that a rate rise was possible for September, maintaining the narrative of uncertainty surrounding September. The Euro was hampered by a less confident tone surrounding risk appetite during the day as equity markets lost ground. ECB rhetoric also failed to provide further support to the single currency and it tended to drift lower.

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Fed Chair Powell will testify to Congress on Wednesday and Thursday and his comments will be watched closely during the day. Powell overall is likely to repeat his rhetoric from the June press conference and will be very reluctant to provide any specific guidance on the next meeting. US housing starts increased strongly to an annual rate of 1.63mn for May from a revised 1.34mn previously and well above consensus forecasts of 1.40mn. Building permits also jumped to 1.49mn from 1.15mn and above market expectations of 1.43mn. The housing data maintained expectations that the housing sector was proving resilient in the face of higher interest rates.

Key Data 

15.00 Jerome Powell Testifies