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Morning Update

The Telegraph is leading with an article that Downing Street is planning an early election in the Autumn of 2024 as the party tries to reduce its gap in the polls and boost its chances of another term.

The Telegraph is leading with an article that Downing Street is planning an early election in the Autumn of 2024 as the party tries to reduce its gap in the polls and boost its chances of another term. Presently, average opinion polls suggest that the Conservative Party is 18 percentage points behind Labour. While this gulf between the Conservatives and Labour demonstrates the scale of the challenge facing Rishi Sunak, since the 42-year-old took on his prime ministerial post, he has reduced this gap by some six percentage points.

His accession last October followed a year which saw the departure of two PMs, along with 145 other government resignations and sackings and the new PM has thus tried to restore credibility amongst the electorate. Hence, while according to the Fixed Term Parliament Act the general election is to be held no later than 25th January 2025, many in No.10 feel that an early election will give the party the best odds for victory.

Today in Focus

This morning will see Eurozone retail released for March, where the general market consensus is forecasting a contractionary print of 3.5%. This would mark a further 1% fall from February’s data and is indicative of the squeeze on households manifesting itself on cuts in spending – particularly discretionary. This comes ahead of the respective talks of the Fed’s Goolsbee (a voting member of the FOMC) and Harker where markets will paying close attention to any insight on their monetary policy views. Both speeches of course comes ahead of US CPI released tomorrow, where the market consensus is estimating a headline print of 5.6% on an annualised basis – unchanged from last month – and a core print of 0.4% on a month-on-month basis. Following strong non-farms data, money markets currently imply that there is around a 70% chance that the Federal Reserve will hike on 3rd May, though such markets indicate that the central bank are approaching their terminal rate.

Today will also see the Swiss parliament hold sessions on the Credit Suisse-UBS deal and regulatory changes as markets weigh on a tumultuous few months in the global banking sector.

This morning saw Chinese inflation come in softer-than-expected hitting 0.7% over March, against forecasts of 1%. March’s print also came in 0.3 percentage points lower than last month’s print and was the lowest figure since September 2021. This morning’s print follows the the PBoC’s voting to keep their base interest rate unchanged at 3.65% a level which has stood since August 2022.

Oil in Focus

Last’s week’s price action remained heavily influenced on OPEC+’s announcement that they would look to reduce by some 1.16 million barrels per day from May until the end of 2023. Hence, despite non farms coming in higher-than-expected and thus raising the odds that the Federal Reserve may opt for a 25bpt rate hike, oil prices remain buoyed on the prospect of supply side pressures. As such WTI crude futures are now trading at over $80 per barrel up some 7.1% on the month and 2/3rds of a percent on the day.

More generally markets are also digested OPEC’s Secretary-General Haitham Al-Ghais warning over the potential for suppressed demand from Europe and the US. Though 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. According to the IEA, half of the expected rise in demand will be driven by China’s reopening. Over the course of last year, Chinese oil demand dropped on average by 390,000 bpd, which also represented the first annual decline since 1990.

Away from the demand side, the IEA also highlighted potential oil supply side constraint. The group stated that: “World oil supply growth in 2023 is set to slow to 1 mb/d following last year’s OPEC+ led growth of 4.7 mb/d. An overall non-OPEC+ rise of 1.9 mb/d will be tempered by an OPEC+ drop of 870 kb/d due to expected declines in Russia. The US ranks as the world’s leading source of supply growth and, along with Canada, Brazil and Guyana, hits an annual production record for a second straight year.”


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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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