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