French Election, U.S. Holiday, and Looking Ahead to Powell Testimony Later in the Week

June 20, 2022

The second and final round of French parliamentary elections over the weekend left President Macron with significantly less political power than he enjoyed in his first five-year term. Macron’s coalition fell short of an absolute majority by over 40 seats. Both the left-wing ecologist coalition and Le Pen’s far right National Rally, which came in second and third in seats, took more seats than last time. The election result has greater implications than Macron not being able to get approval for his agenda, since he had emerged as Western Europe’s and Nato’s leading politician after German Chancellor Merkel had stepped down.

U.S. banks will be closed and there will not be stock market trading today due to the Juneteenth holiday that celebrates the end of slavery in America. This should deprive other financial markets of usual leadership this Monday. Ten-year British gilt and Japanese JGB yields rose 4 and 1 basis point overnight, while their German counterpart is unchanged on net. European share prices so far today show gains of 1.2% in Spain and 1.1% in the U.K. but just 0.6% in Italy, 0.4% in Germany and 0.2% in France. Japan’s Nikkei lost 0.7%. The price of oil at $109.90 WTI is more than $10 below its June high. Gold is little changed. Bitcoin fell below $119.7k in overnight trading but currently shows a net rise of about 1.5% and exceeds $21,850.

The DXY weighted dollar index is 0.3% softer. The dollar is also down 0.3% against the euro, which has the largest weight by far in DXY. There have also been dollar declines of 1.8% against the ruble, 1.0% relative to the Australian dollar, 0.8% versus the Swiss franc, but only 0.1% against the Japanese yen. Sterling is steady.

Fed Chairman Powell is scheduled to deliver semi-annual testimony on Fed policy and the U.S. economy before the Senate Banking Committee on Wednesday morning and the House Financial Services Committee on Thursday morning. Expect to hear some pretty sharp criticism of monetary officials by those committees for not attacking inflation hard sooner and for confusion regarding the credibility and central role of forward guidance.

Policymakers at the People’s Bank of China did not change the one-year or five-year loan prime rates at the June fixing. The five-year rate of 4.45% had been cut by 15 basis points in May and 5 bps in January. The one-year LPR of 3.70% was sliced by 10 bps in January and 5 bps last December. Some analysts were predicting it would be reduced this month. With Covid lockdowns now being carefully rolled back, officials opted to be patient and to avoid the much higher-than-expected inflation in many western countries like the United States.

German producer price inflation ticked 0.1 percentage point higher to yet another alltime peak of 33.6% in May.

CPI inflation in Bangladesh jumped 1.1 percentage point from an 18-month high of 6.3% in April to an eight-year high of 7.4% in May.

Consumer prices in Lebanon were 8% higher in May than April, resulting in a hyperinflationary 12-month rate of increase that exceeded 210% last month.

Construction output in Euroland fell 1.1% on month in April, and its on-year advance of 3.0% was the smallest since December saw a 12-month decrease of 1.0%. Construction output posted year-on-year growth of 18% in the second quarter of 2021, by comparison.

New Zealand’s service sector purchasing managers index rebounded 3.0 index points to an 11-month high of 55.2 in May, reflecting continuing emergence from a period of Covid-inspired lockdowns.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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