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Morning Update

Kaja Kallas wins Second Term

Estonia’s incumbent PM, Kaja Kallas has won a second term as the leader of the Reform Party fended off an attempt from the far right EKRE party to displace her liberal party.

The Reform Party have been one of the staunchest proponents of Ukraine’s defensive campaign against the Russian’s, supplying Kyiv with one of the highest levels of military, humanitarian and financial aid on a per capita basis. Estonia have also taken in a considerable number of refugees in relation to their size and only recently, the UNHCR wrote that “since the start of the war in Ukraine, Estonia has welcomed more than 43.000 refugees from Ukraine who have been registered for temporary protection status. This number constitutes around 3,24 per cent of the population and is the largest inflow of refugees in the history of Estonia.”

Meanwhile, the Reform Party’s key opposition party, EKRE said that they would stop accepting more refugees from Ukraine as well as stop the transition to green energy. Hence, Kallas’ win is thought to set Estonia on a course of further investment into green energy, accepting refugees and sending aid to support Ukraine.

It is now expected that Kallas will try to establish a coalition government ahead of her next term.

China Announces Lowest Growth Target in Decades

This morning has seen markets digest news from Beijing that the CCP are setting a modest 5% target for growth over the course of 2023. This comes after a difficult year for China as far as growth is concerned with Beijing recording that the Chinese economy expanded just 3% over 2022. The Chinese Premier Li Keqiang citied a host of domestic and international reasons why growth will likely continue to be under pressure this year.

This comes as concerns still remain over China’s property market which has seen the real estate giant Evergrande have to successively restructure its $300bn worth of debt which it has struggled to repay. Additionally, last year the CCP’s zero-Covid stance also saw tens of millions of people go into lockdown, hitting Chinese manufacturing and output. Sino-US relations have also soured in recent months, not least because of the issue of surveillance balloons. Hence, while China continues to rebound from its lockdowns, their growth target this year is indicative of the difficulties that remain for the world’s second largest economy. Hence Chinese growth slowing will also concern investors overgrowth elsewhere given the importance that Chinese manufacturing and exports plays in the global economy.

Friday saw a rally on equities as investors digested higher-than-expected ISM services PMI figures (which came in at 55.1pts against a market forecast of 54.5pts). On the topic of PMIs, one senior analyst told Reuters that “investors saw what they wanted in the ISM data, which was basically healthy growth with slowing prices” This fed into a rally on equities which saw the S&P 500 end 1.16% higher while the tech heavy Nasdaq and Dow Jones also rose 1.9% and 1.17% respectively. Across the Atlantic, European shares ended higher, with the Stoxx 600 rising 0.9% over the session.

Oil in Focus

Despite a mixed tone in global risk sentiment on Friday, WTI crude futures have come under some pressure this morning given the news from Beijing that they are setting a more modest 5% target for growth over 2023. As such, WTI has dropped albeit marginally to around $79.5dbp – a loss of around 0.2%. Despite Friday’s rally, oil has come under pressure lately given that investors have upwardly revised their rate hike expectations from the Fed, thus concerning markets over the prospect of suppressed demand due to easing growth. Nevertheless, according to the International Energy Agency, global oil demand could rise by 2m bpd to reach a record level of just shy of 101.7m bpd as China continues its reopening.

Today’s move indicates that WTI crude futures have fallen a little over 31.3% on the year, having spiked at around $120dpb last March.


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USDCAD – 7 June 2023

USDINR – 7 June 2023

JP Morgan’s Opinion in Focus

JP Morgan have made some interesting points in the last couple of days: speaking about the Fed meeting next week, they’re concerned that if the FOMC do press the pause button, but were then forced to resume rate hikes either in July, or after the summer, in the face of stubborn inflation, what would this do to risk appetite in the market, because it might be a bit unnerving to see that the central bank hasn’t got a firm grasp on the problem.

Halifax Index: UK House Prices Fall for First Time Since 2012

According to the Halifax house price index, the price of residential property fell for the first time since 2012. The 1% depreciation between May 2022 and May 2023 came in line with expectations as analysts assess the impact of higher interest rates on households.

Nova Khakovka Dam Destroyed in Kherson, Ukraine

The vast Ukrainian Nova Khakovka Dam has been destroyed in the Russian occupied region of Kherson, Ukraine releasing a torrent of water as concerns for residents and nuclear power facilities up and downstream grows.

Think Tank Seeks Backing for UBI Trial

Plans have been unveiled for a Universal Basic Income (UBI) trial in the UK, with the think tank Autonomy currently seeking financial backing. It is hoped that the trial will span over two years with participants receiving £1,600 each month and being in control of how they spend or save the funds.

All Eyes on US Labour Market Data

Today all eyes are on US labour market data where the markets will be looking to gain an insight into the health of the US economy and the extent to which the jobs market is feeding into inflationary pressures ahead of the Fed’s meeting on 12 June.

House Passes Debt Ceiling Bill

Last night, the House comfortably passed the debt ceiling bill in arguably the most important stage in the process to ensure that the world’s largest economy averts a technical default. The House of Representatives cleared the Fiscal Responsibility Act by 314-117, the bipartisan deal assembled by President Joe Biden and House Speaker Kevin McCarthy.

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