July 15, 2022

Daily Report 15/07/2022

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The latest Bank of England credit conditions survey reported that lender expect the biggest fall in mortgage demand for two years. There were further expectations of a slowdown in the housing sector following the latest RICS survey which registered the lowest proportion of surveyors expecting higher house prices since April 2021. Bank of England Deputy Governor Ramsden stated that the central bank will not let inflation get out of control and interest rates were very likely to have to go up further to stop a repeat of persistently high inflation that was seen in the 1970s and 1980s. Although domestic yields increased again, global trends dominated during the day.

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Italian bonds declined sharply in early Europe on Thursday with expectations that the government would lose a confidence vote as the Five-Star movement withdrew support. A renewed widening of peripheral yield spreads also undermined confidence and the dollar maintained a strong overall tone. The EU Commission held the 2022 GDP growth forecast at 2.7%, but lowered the 2023 estimate to 1.5% from 2.3% previously while inflation forecasts were revised higher. With risk appetite continuing to deteriorate, the dollar secure further defensive support and the Euro finally dipped below just after the New York open.

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Fed Governor Waller stated that he would support a further 75 basis-point rate hike this month, but could lean towards a larger hike if retail sales and housing data comes in materially stronger than expected. He also commented that the central bank does not want to overdo rate hikes and that 75 basis points would take rates to neutral. He added that the market may have over-estimated the chances of a 100 basis-point hike in July and that latest data on inflation expectations will be very important. Although he expressed concerns over inflation data, the rhetoric was slightly less hawkish than expected. St Louis head Bullard also backed a 75 basis-point hike for this month. The dollar rerated after Waller’s comments with the Euro edging back above parity as equities also attempted to recover.

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13:30 US Retail Sales forecast 0.8 previous -0.3