June 23, 2022

Daily Report 23/06/2022

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Sterling lost ground following the UK inflation data with markets focussing on a decline in the underlying rate to 5.9% from 6.2% and marginally below expectations of 6.0%. The lower underlying rate triggered fresh doubts whether the Bank of England would tighten policy aggressively with future markets not pricing in rates of 2.75% by November. A slightly firmer tone surrounding risk appetite also helped underpin sentiment to some extent, although sentiment remained fragile. There were highs against the dollar as the US currency retreated, but Sterling failed to hold peak levels and fell. Two UK by-elections will be held on Thursday with the results due on Friday and two defeats for the Conservatives would trigger fresh uncertainties over Prime Minister Johnson’s future. Sterling drifted lower on Thursday with the second day of the rail strike reinforcing generally negative sentiment.

Key Data

9.30 S&P Global/CIPS Services PMI (Jun) Exp. 53 Prev. 53.4

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Euro-Zone consumer confidence dipped to -23.6 for June from -21.2 previously and weaker than consensus forecasts of -20.5 with market confidence in the Euro-zone economy remaining fragile. German Finance Minister Lindner stated that the economy is already in a crisis due to cuts in gas supplies. According to a draft document, the EU will grant Ukraine candidate status which reinforced fears over fresh retaliation measures on energy supplies from Russia.

Key Data

8.30 German S&P Global/BME Composite PMI (Jun) Exp. 53.1 Prev. 53.7
8.30 German S&P Global/BME Manufacturing PMI (Jun) Exp. 54 Prev. 54.8
9.00 S&P Global Composite PMI (Jun) Exp. 54 Prev. 54.8

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In testimony to Congress, Fed Chair Powell stated that the central bank is strongly committed to bringing inflation down and he anticipates on-going rate increases will be appropriate. He added that inflation had clearly surprised to the upside and further surprises could be in store with the Fed needing to be nimble. Powell reiterated that the pace of future rate increases will depend on incoming data and the evolving economic outlook. When asked whether a 100 basis-point hike was possible he stated that nothing is off the table, but it was unlikely. Powell added that financial conditions have tightened significantly and investment growth appears to be slowing while the housing sector is softening. He also stated that it is possible that rate rises could cause a recession. Markets had been braced for hawkish stance and tended to focus on comments surrounding weakening demand within the economy. Markets were also slightly less confident over a further 75 basis-point rate hike at the July meeting and the dollar lost ground as US yields moved lower.

Key Data 

15.00 Jerome Powell Testifies
21.30 Bank Stress Test Info