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Market Briefing - Markets Climb Recessionary Wall of Worry

CalendarJune 27, 2022

Risk-sensitive currencies are starting off the week on an optimistic footing as growing recession fears keep a lid on US yields. Equity futures are rising ahead of the open and the dollar is trading defensively, while the euro and pound sterling make up ground. Treasury, bund and gilt yields are all up slightly, although they remain well below levels reached in the last two weeks. 

Crude and base metals prices have risen, but the North American oil benchmark is still near early-May levels, and the broader commodity complex remains under pressure. The Canadian dollar broke higher at the open yesterday afternoon, and is nearly unchanged as traders continue to bet the Bank of Canada’s monetary tightening trajectory will be closely aligned with the Federal Reserve’s. 

One of the data points that triggered the Fed’s 75 basis point rate hike now appears to have been an overstatement. A revised version of the University of Michigan’s consumer sentiment survey, released on Friday, showed Americans expecting inflation to run at 3.1 percent over the next five to ten years, not the 3.3 percent previously reported. In last week’s Congressional testimony, Jerome Powell had highlighted the “eye-catching” jump as a factor in prompting the more aggressive move. Odds on a second 75 basis point move at the July meeting are holding near the 94 percent mark after wobbling slightly when the revised number was published. 

The Japanese yen is trading in becalmed waters around the 135-to-the-dollar mark after a summary of discussions from the central bank’s June meeting showed a continued commitment to keeping yields under control. The meeting record suggested policymakers would need to see significant and sustained wage gains before contemplating a change in policy. Officials were also sanguine about market pressure on the yield curve target, implying a high degree of confidence in the bank’s capacity to fend off speculators. We wouldn’t be astonished to see a rise in the yen from here as global yield differentials narrow and safe haven currencies become more attractive. 

Russia missed payments on two foreign currency bonds last night, falling into default for the first time since the 1918 Bolshevik revolution as Western sanctions prevent the movement of funds. Markets - which have long anticipated such an outcome - are broadly unbothered, and the one-way ruble exchange rate hasn’t moved appreciably. 

May durable goods orders are due at 8:30. Markets expect month-over-month growth to slump toward 0.2 percent as consumers shift spending toward services and businesses cut investment on equipment. As always, the highly-volatile transportation category could wreak havoc with the headline number. 

Tomorrow’s Conference Board consumer confidence number could be a key market mover, with inflation worries likely to drag the index lower even as job market conditions remain strong. A print below the 100 mark could reinforce recession worries in markets, putting downward pressure on yields and the dollar. 

On Thursday, the Bureau of Economic Analysis is expected to report a modest deceleration in what was once considered the Fed’s preferred inflation measure - the core personal consumption expenditures price index. Economists think the year-over-year measure will slip to 4.8 in May from 4.9 percent in the prior month - but the index could rise 0.4 percent on a month-over-month basis, slightly faster than in April. Central bankers will be watching closely, even if they are now more concerned with where headline consumer prices are headed. 

Upcoming Events


USD Durable Goods Orders, May


USD Advance Goods Trade Balance, May

USD    Conference Board Consumer Confidence, June


USD Department of Energy Weekly Inventories

CNY    Purchasing Manager Indices, June


EUR    Unemployment Rate, May

USD    Personal Consumption Expenditure, May

CAD    Gross Domestic Product, April

USD   Weekly Jobless Claims

CNY    Caixin China Manufacturing Purchasing Manager Index

USD    OPEC+ Meeting


EUR Consumer Price Indices, June

USD    ISM Prices Paid

USD    Baker Hughes Weekly Rig Count


Karl Schamotta

Karl Schamotta

Chief Market Strategist

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