G7 Summit Wrapping Up, ECB to Raise Interest Rates, and Evidence of Softening Consumer and Business Confidence

June 28, 2022

Dollar movements overnight have been narrowly mixed, with declines of 0.4% against the loonie, 0.5% versus the ruble, 0.2% vis-a-vis the Australian dollar, and 0.1 relative to the Swiss franc but gains of 0.5% against the yen, 0.4% relative to the kiwi, 0.2% versus sterling, and 0.1% against the euro, peso and on a weighted basis.

Equities were bid higher amid confidence that inflation will fall as growth slows. Share prices closed up in the Pacific Rim by 0.9% in China, Hong Kong, South Korea and Australia and by 0.7% in Japan. Key European stock  markets have thus far risen over 1.0%, and U.S. stock futures show a 0.6% advance.

A speech in Portugal by European Central Bank President Lagarde confirmed that net asset purchases are about to end and the interest rates will be raised by a quarter percentage point at the July policy review. That will be for the first increase in 11 years. She said another interest rate hike would be hike further in September and that policy will be tightened until officials are confident that a return to 2% medium-term inflation is in the cards. At the same time, officials are developing a plan to ensure that rate normalization does not widen sovereign debt yield spreads among euro area members. The group will be expanding next January with the admission of Croatia.

Ten-year sovereign debt yields rose overnight by 11 basis points in Germany and France, 12 bps in the Netherlands, 9 bps in Spain, and 7 bps in Italy. The 10-year U.S. Treasury yield (+4 bps) and 10-year Japanese Government Bond yield (unchanged) saw smaller movement.

West Texas Intermediate oil and Bitcoin‘s price  rose 1.7% and 1.5%, while gold held almost steady on net.

The Group of Seven leaders summit will be issuing a communique later today that is said to commit resources for world food security and create a “climate club.” Next up is the NATO conference in Spain where the effort will be to increase military aid to Ukraine.

French consumer confidence fell to a reading in June of 82, lowest since July 2013 and down from 103 a year ago.

German consumer sentiment dropped additionally to another record low of -27.4, down from +1.0 eight months earlier.

Austria’s manufacturing purchasing managers index sank 5.4 points in June to a 22-month low of 51.2.

A 0.6% monthly drop in Swedish retail sales in May resulted in only the second year-on-year decrease (2.3%) since December 2018. Sweden also experienced its third trade deficit in three months during May. The trade balance over the first five months of 2022 netted out to zero versus a surplus of SEK 17.7 billion a year earlier.

Danish retail sales fell 1.1% on month in May, marking the third decline in four months. Sales were also 7% lower than their year-earlier level.

Sri Lankan GDP in the first quarter was 1.6% smaller than a year earlier. That followed on-year advances of 2.0% in the fourth quarter of 2021 and 4.0% in 1Q 2021.

Italian industrial sales showed continuing momentum in April, climbing 2.7% on month month and 22% compared to the same month a year earlier.

Malaysian producer price inflation rose 0.2 percentage points to a 2-month high of 11.2% in May.

Several U.S. data releases are on today’s menu: the FHFA and Case Shiller house price indices, the Conference Board’s measure of consumer confidence, the Richmond Fed manufacturing survey, and the preliminary estimate of the U.S. trade deficit.

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

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