Market Briefing - Jerome Alone 2

Yesterday’s rally has gone into reverse after a number of the world’s biggest banks warned of increasing recession risks. Citi, Goldman, and Morgan Stanley all issued reports outlining areas of economic slowdown and suggesting asset prices could have further to fall - a narrative that could become a self-fulfilling prophecy in markets. 

Equity futures are positioned for a weaker open after the biggest North American indices jumped more than 2 percent yesterday. Treasury yields are falling, with the 10-year down almost eight basis points to 3.22 percent. The dollar is climbing ever higher.

Federal Reserve Chairman Jerome Powell will begin the first of two days of Congressional testimony in a few hours, delivering the central bank's semi-annual policy report to the House. Mr. Powell will do his best to summon the ghost of Paul Volcker, delivering an aggressively hawkish message as he attempts to break an inflationary mindset that shows signs of becoming entrenched among the American public. He is likely to come under fire from both sides of the aisle.

Oil prices are tumbling, with West Texas Intermediate trading hands for $104 a barrel, and Brent near $109. President Biden is expected to ask Congress to approve a gas tax holiday when he speaks at 2 pm - a move that might reduce prices at the pump if it didn’t also raise demand for refined products. 

The Canadian dollar is knocking on resistance at the 1.30 mark, with the latest inflation figures, due at 8:30 am, likely to provide a catalyst for further movement. Odds on a 75 basis point hike at the Bank of Canada’s July meeting are holding near the 92 percent mark.

Data released earlier this morning showed rising food and energy prices lifting the UK’s inflation rate to 9.1 percent in May, another 40-year high. Softness in the core measure - from 6.2 to 5.9 percent year-over-year - failed to dissuade investors betting on further price increases, and the pound climbed in the hours after the print. 

The yen, traditionally a safe haven, is climbing off the 136.70 low reached overnight - its weakest print since 1998. Although there is little in the way of technical resistance between prevailing levels and the 140 threshold, falling oil prices and stabilizing interest differentials could see the country’s current account balance and yield discount improve in the coming months. 

Upcoming Events

WEDNESDAY

CAD    Consumer Price Indices, May

USD    Federal Reserve Congressional Testimony, Powell

USD    Federal Reserve Speech, Evans

THURSDAY

EUR    European Central Bank Economic Bulletin

EUR    S&P Eurozone Purchasing Manager Indices

GBP    Retail Sales, May

USD    Current Account Balance, Q1

USD    Weekly Jobless Claims

USD    S&P US Purchasing Manager Indices

GBP    Bank of England Speech, Haskel

USD    Federal Reserve Congressional Testimony, Powell

USD    Department of Energy Weekly Inventories

MXN    Bank of Mexico Rate Decision

CNY    Current Account Balance, Q1

FRIDAY

JPY     Bank of Japan Speech, Amamiya

AUD    Reserve Bank of Australia Panel, Lowe

CAD    Survey of Employment, Payrolls and Hours, April

USD    Baker Hughes Weekly Rig Count