June 30, 2022

Daily Report 30/06/2022

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Sterling was unable to make headway in early Europe on Wednesday and gradually lost ground as confidence in the UK outlook remained notably fragile. Bank of England Governor Bailey stated that the bank will have to act more forcefully if we see persistence in inflation and the situation leaves options on the table. He added, however, that it is clear that the economy is slowing and he reiterated that the economic shock s very substantial and will hit demand. External member nominee Dhingra stated that the latest data indicated that a slowdown may be much more imminent than previously thought and there is room for a very gradual approach. She did, however, add that the pass through from company costs to consumer inflation appears to be substantial. The rhetoric overall from Dhingra suggested that she would be less hawkish than her predecessor Saunders which will shift the balance of the committee. There will still be clear divisions within the policy committee, but hawkish expectations were scaled back slightly.

Key Data

7.00 Gross Domestic Product (QoQ) (Q1) Act. 0.8% Exp. 0.8% Prev. 0.8%

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The Euro-Zone industrial sentiment index strengthened to 7.4 for June from 6.5 previously while the services-sector index edged higher to 14.8 from 14.1 with both readings above consensus forecasts. Consumer confidence remained weak, however, and the overall economic survey index retreated to 104.0 from 105.0. Spanish inflation increased to a 37-year high of 10.2% from 8.7% previously. ECB member Simhus stated that a 50 basis-point rate hike is very likely for September while fellow member Holzmann stated that the bank can move in 25-50 basis-point increments after September. The German CPI inflation rate retreated to 7.6% for June from 7.9% previously and significantly below expectations of 8.0%. The lower than expected reading dampened expectations that the ECB would need to be as aggressive in tightening monetary policy as priced in by markets and the Euro lost ground.

Key Data

7.00 German Retail Sales (YoY) (May) Act. -3.6% Exp. -2% Prev. -0.4%

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Cleveland Fed President Mester stated that she would advocate a 75 basis-point rate hike for the July meeting and that she wanted to see rates at 4% next year. She added that the Fed would have to act more forcefully if inflation expectations become unanchored. She said that the current inflation situation is a very challenging one and policymakers cannot be complacent about a rise in longer-term inflation expectations. Fed Chair Powell maintained a hawkish stance with comments that the biggest threat to the US economy is persistent inflation and not that rate hikes will slow the economy too much.

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