Central banks continue to act against inflation

EU Mid-Market Update: Central banks continue to act against inflation; EU cuts growth outlook while raising inflation forecasts.

Notes/Observations

- Since US CPI yesterday, Central Banks of Canada, Chile, Philippines and Singapore have all tightened policy, either by more than expected or via intra-policy decisions. Central Banks are having to walk a fine line between combating inflation and stunting growth which is affecting traders psychology of risk on/off plays. Policy makers are likely to continue the debate while more data comes in, but without a focus on one or the other, both growth and inflation are potentially primed to diverge further, replicating the 1970s.

- European markets trade lower as Sweden and Finland CPI came in higher than estimates.

- Most commodities trade significantly lower, including metals, energy and agriculture.

- The 3-month Euribor fixing turned positive for the 1st time in 7 years.

- Global food security risks remain as US Treasury Sec Yellen vows to address concerns at G-20. Reports of a new agreement between Russia and Ukraine to create a security zone to check grain near Ukrainian waters.

- Asia closed mixed with NZX50 outperforming at +0.7%. EU indices start -0.7-2.1% with bond yields notably higher. US futures are in the red. Safe haven: Gold -1.20%, DXY +0.6%; Commodity: Brent -2.3%, WTI -2.9%, Copper -1.9%, UK Nat Gas -3.6%; Speculative: BTC -0.4%, ETH +0.8%.

- Companies due to report during the NY morning include JPMorgan, Morgan Stanley, ConAgra Foods.

Asia

- Singapore Q2 Advance GDP (1st reading) Q/Q: 0.0% v 1.0%e; Y/Y: 4.8% v 5.4%e v 3.7% prior.

- Monetary Authority of Singapore (MAS) again tightened its policy.

- Philippines Central Bank (BS) again hikes its Overnight Rate by 75bps to 3.25% (intra-meeting move).

- Australia July Consumer Inflation Expectation Survey: 6.3% v 6.7% prior.

- Australia Jun Employment Change: +88.4K v +30.0Ke; Unemployment Rate: 3.5% v 3.8%e.

- Japan Chief Cabinet Sec Matsuno reiterated govt was concerned about recent rapid JPY currency (Yen) weakening, to watch the impact of US inflation.

Ukraine conflict

- Ukraine Foreign Min Kuleba stated that were two steps away from reaching an agreement with Russia on grains export; in the final phase of grain talks, now everything depended on Russia.

- Turkey govt official stated that Russia and Ukraine reached a “basic, technical” agreement to move grain exports out of blockaded Black Sea ports.

Europe

- European Commission draft report said to cut its 2022 EU GDP growth forecast from 2.8% to 2.6% and also cut the 2023 growth outlook from 2.3% to 1.4%. To raise 2022 CPI forecast from 6.1% to 7.6% and raise 2023 CPI from 2.7% to 4.0%.

- Italy Five Star Party said to be prepared to boycott upcoming confidence vote; move seen putting Italy PM Draghi govt at risk.

- First round of UK Conservative leadership ballot: Sunak 88, Mordaunt 67, Truss 50, Tom Tugendhat 37, Badenoch 40, Braverman 32; Eliminated: Hunt 18 and Zahawi 25.

Americas

- Fed's Daly (non-voter, dove) stated that most likely posture was 75bps rate hike but noted 100bps was within the range of possibilities.

- Fed's Barkin (non-voter, hawk) noted that iIndividual rate moves were less important than the destination and path; Jun CPI report showed inflation was broad based; It strengthened case to be resolute on inflation.

- Fed’s Beige Book noted that substantial price increases were reported across all Districts. Several districts reported growing signs of a slowdown in demand.

- Chile Central Bank (BCCh) raises Overnight Rate Target by 75bps 9.75% (more-than-expected).

Speakers/Fixed incomeE/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.93% at 408.98, FTSE -0.83% at 7,097.30, DAX -0.76% at 12,659.78, CAC-40 -1.06% at 5,936.90, IBEX-35 -1.31% at 7,841.10, FTSE MIB -2.11% at 20,837.00, SMI -0.67% at 10,832.20, S&P 500 Futures -1.23%].

Market Focal Points/Key Themes: European indices open down across the board and remained in the red as the session wore on; risk sentiment under pressure following rumors Fed could raise rates by more than expected, political discord in Italy; better-performing sectors include consumer discretionary and technology; sectors among those leading to the downside are financials and telecom; Deutsche Telekom to sell stake in GD Towers to DigitalBridge; Bayer sells its Nebido unit to Gruenenthal; TransGlobe Energy to be acquired by VAALCO; earnings expected during the upcoming US session include JPMorgan, Conagra and Morgan Stanley.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] +4% (prelim results).

- Energy: Saipem [SPM.IT] +8% (agreement with Aramco).

- Financials: Sabre Insurance [SBRE.UK] -38% (trading update).

- Healthcare: Bayer [BAYN.DE] -1% (divestment).

- Industrials: Experian [EXPN.UK] +2% (trading update).

- Technology: Infineon [IFX.DE] +1% (TSMC results and outlook; Intel said to hike prices).

- Telecom: Ericsson [ERICB.SE] -8.5% (earnings), Deutsche Telekom [DTE.DE] -2% (confirms to sell stake in unit).

Speakers

- EU Commission Summer Economic Forecasts cut its 2022 and 2023 growth outlook while raising the inflation forecasts (as speculated). Euro-Area inflation to peak in 3Q 2022. EU economy now faced a significantly slower outlook as well as a bigger and more enduring cost-of-living shock than just two months ago. Headwinds posed by fallout from Russia’s war in Ukraine.

- Italy ruling coalition said to be looking at ways to avoid a confidence vote in Senate on Thursday.

- Italy PM Draghi stated confidence vote must be help in Senate today (Thurs).

- Russia-Ukraine grain agreements said to include the creation of a security zone to check ships near Ukrainian waters, and not in ports; The preliminary date for the new meeting of the delegations of Turkey, Russia, Ukraine and the UN on grain on July 20-21st.

- Treasury Sec Yellen commented ahead of G20 Finance Minister meeting in Indonesia that almost half of US inflation increase was due to energy. Price-cap plan on Russian oil would put downward pressure on CPI. War in Ukraine was causing negative spillovers worldwide in energy prices and food insecurity.

- China Commerce Ministry (MOFCOM) stated that foreign trade faced various uncertainties in H2 2022.

Currencies/Fixed income

- USD maintained its firm tone in the session aided by speculation that the Fed would ratchet up interest rates to combat soaring inflation. Safe-haven flows continue to percolate as concerns mount that the central banks would strangle global recovery by responding more aggressively to dampen upside inflation risks. USD Index at a fresh 20-year high at 108.65 area.

- EUR/USD hovering just above parity after the brief test below that psychology level on Wed.

- USD/JPY tested above 139 for fresh 24-year highs as BOJ-Fed policy divergence continued to be highlighted.

- Italian bonds drop amid increasing political turmoil after Five Star Movement’s refusal to back PM Draghi in a confidence vote raises the prospect of his resignation which could lead to an early election.

Economic data

- (SE) Sweden Jun PES Unemployment Rate: 3.1% v 2.9% prior.

- (FI) Finland Jun CPI M/M: 0.7% v 1.3% prior; Y/Y: 7.8% v 7.0% prior.

- (DE) Germany Jun Wholesale Price Index M/M: No est v 1.0% prior; Y/Y: No est v 22.9% prior.

- (SE) Sweden Jun CPI M/M: 1.4% v 1.0%e; Y/Y: 8.7% v 8.3%e highest annual pace in three decades); CPI Level: 370.95 v 369.77e.

- (SE) Sweden Jun CPIF M/M: 1.2% v 0.9%e; Y/Y: 8.5% v 8.1%e.

- (SE) Sweden Jun CPIF (ex-exergy) M/M: 0.7% v 0.4%e; Y/Y: 6.1% v 5.8%e.

- (CH) Swiss Jun Producer & Import Prices M/M: 0.3% v 0.9% prior; Y/Y: 6.9% v 6.9% prior.

- (IN) India Jun Wholesale Prices (WPI) Y/Y: 15.2% v 15.6%e.

- (TR) Turkey May Retail Trade Y/Y: 20.8% v 15.0% prior.

- (TR) Turkey May Industrial Production M/M: +0.5% v -0.3%e; Y/Y: 9.18.0%e.

- (HU) Hungary Central Bank left the weekly One Week Deposit Rate Setting unchanged at 9.75%.

- (CZ) Czech May Current Account Balance (CZK): -22.8B v -25.0Be.

Fixed income issuance

- (IE) Ireland Debt Agency (NTMA) sells €1.0B vs. €1.0B indicated in 3-month bills; Avg Yield: 0.050%; Bid-to-cover: 2.0x.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa May Total Mining Production M/M: +2.0%e v -4.3% prior; Y/Y: -10.9%e v -14.9% prior; Gold Production Y/Y: No est v -27.8% prior; Platinum Production Y/Y: No est v -22.6% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 06:00 (IE) Ireland Jun CPI M/M: No est v 0.9% prior; Y/Y: No est v 7.8% prior.

- 06:00 (IE) Ireland Jun CPI EU Harmonized M/M: No est v 1.1% prior; Y/Y: No est v 8.3% prior.

- 06:00 (CZ) Czech Republic to sell 1-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 08:00 (PL) Poland May Current Account Balance: -€3.5Be v -€3.9B prior; Trade Balance: -€2.7Be v -€2.5B prior; Exports: €26.7Be v €26.6B prior; Imports: €29.2Be v €29.0B prior.

- 08:00 (BR) Brazil May Economic Activity Index (Monthly GDP) M/M: +0.2%e v -0.4% prior; Y/Y: 4.4%e v 2.2% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (HU) Hungary Central Bank Dep Gov Virag.

- 08:30 (US) Jun PPI Final Demand M/M: 0.8%e v 0.8% prior; Y/Y: 10.7%e v 10.9% prior.

- 08:30 (US) Jun PPI (ex-food/energy) M/M: 0.5%e v 0.5% prior; Y/Y: 8.2%e v 8.3% prior.

- 08:30 (US) Jun PPI (ex-food/energy/trade) M/M: 0.5%e v 0.5% prior; Y/Y: 6.6%e v 6.8% prior.

- 08:30 (US) Initial Jobless Claims: 235Ke v 235K prior; Continuing Claims: 1.38Me v 1.375M prior.

- 08:30 (CA) Canada May Manufacturing Sales M/M: -2.4%e v +1.7% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 8th: No est v $586.8B prior.

- 10:00 (PT) ECB’s Centeno (Portugal).

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Fed’s Waller.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 15:00 (AR) Argentina Jun National CPI M/M: 5.4%e v 5.1% prior; Y/Y: 64.1%e v 60.7% prior.

- 17:00 (KR) South Korea Jun Export Price Index M/M: No est v 3.1% prior; Y/Y: No est v 23.5% prior.

- 17:00 (KR) South Korea Jun Import Price Index M/M: No est v 3.6% prior; Y/Y: No est v 36.3% prior.

- 18:30 (NZ) New Zealand Jun Manufacturing PMI: No est v 52.9 prior.

- 19:00 G20 Finance Ministers meet (ECB chief Lagarde and Penetti (Italy) attend).

- 21:20 (CN) Chime Monthly 1-year Medium-Term Lending Facility Rate Setting.

- 22:00 (CN) China Q2 GDP Q/Q: -2.0%e v +1.3% prior; Y/Y: 1.2%e v 4.8% prior; GDP YTD Y/Y: 2.9%e v 4.8% prior.

- 22:00 (CN) China Jun Industrial Production Y/Y: 4.0%e v 0.7% prior; YTD Y/Y: 3.5%e v 3.3% prior.

- 22:00 (CN) China Jun Retail Sales Y/Y: +0.3%e v -6.7% prior; YTD Y/Y: -1.2%e v -1.5% prior.

- 22:00 (CN) China Jun YTD Fixed Urban Assets Y/Y: 6.0%e v 6.2% prior.

- 22:00 (CN) China Jun New Home Prices M/M: No est v -0.2% prior; Y/Y: No est v -0.1% prior.

- 22:00 (CN) China Jun Surveyed Jobless Rate: 5.7%e v 5.9% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.