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Summary United States: This Party Is Breaking Up Fast Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet. Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu) International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come. Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu) Interest Rate Watch: Asset Inflation Is Already Being Curbed The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio… Read More »Weekly economic and financial commentary

Summary United States: This Party Is Breaking Up Fast Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet. Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu) International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come. Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu) Interest Rate Watch: Asset Inflation Is Already Being Curbed The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio… Read More »Weekly economic and financial commentary

All eyes are on the European Central Bank meeting next Thursday, when we are expecting a hike of 25bp. Despite increasing expectations of the larger hike, we believe the Fed will repeat June's move The market is split as to whether the Federal Reserve will raise rates by 75bp or 100bp on 27 July. The strong June US inflation print of 9.1% and the Bank of Canada’s decision to raise its own policy rate by 100bp have helped fuel expectations of a larger hike. However, the weakening economic growth outlook and the fact that two of the most hawkish FOMC members, Chris Waller and James Bullard, have hinted they favour 75bp means we think they will indeed opt to repeat June’s 75bp move. Given there is the usual Fed blackout period starting on 16 July, there will be no additional comments from officials to provide guidance – although that doesn’t rule out someone getting in touch with the Wall Street Journal should there be a material change. In any case, the data flow is largely second-tier with an update on the housing market, which given rising mortgage rates is likely to remain under pressure. Bank of England gearing up for 50bp… Read More »Key events in developed markets next week

Yesterday, JPMorgan Chase (NYSE: JPM) reported that the bank's second-quarter earnings fell as a result of adding $428 million in bad loan reserves. With this view, JPMorgan has chosen to temporarily halt its share repurchases in order to meet regulatory capital requirements. According to a statement from JPMorgan, the reserve rise was primarily to blame for the earnings decline of 28% from a year earlier to $8.65 billion. Additionally, JPMorgan, which has one of the largest operations on Wall Street, was hurt by the slowdown in Wall Street transactions. Investment banking fees dropped sharply by 54% to $1.65 billion, $250 million less than the forecasted $1.9 billion. Fixed income trading revenue increased by 15% to $4.71 billion, Although, strong results in macro trading were offset by a decline in credit and securitized products, resulting in a quarter- end revenue that was below analysts' $5.14 billion projection. On the positive side of its report, revenue from equity trading increased by 15% to $3.08 billion, beating the estimate of $2.96 billion. Rising U.S. interest rates and a growing book of loans are two positive factors for the firm. For the quarter, net interest income increased by 19% to $15.2 billion, exceeding analysts' expectations… Read More »Finding the silver lining in JPMorgan’s Q2 earnings report

AUD/USD Current Price: 0.6748 Australian employment figures were upbeat, but so were inflation perspectives. Fluctuations in the market sentiment lead the way for AUD/USD. AUD/USD is neutral-to-bearish in the near term, could fall further once below 0.6710. The AUD/USD pair ended Thursday with modest losses around the 0.6750 level, hit by a dismal market mood and despite better-than-anticipated Australian employment data. The country reported it added 88.4K new jobs in June, much better than the 25K expected. Full-time new positions accounted for 52.9K, while part-time ones stood at 35.5K. Additionally, the Unemployment rate contracted to 3.5% from 3.9%, much better than the 3.8% expected, while the Participation Rate increased to 66.8%. On a down note, Consumer Inflation Expectations in July surged to 6.3%. The pair fell to 0.6680 early in the American session as risk-off flows dominated financial markets throughout the first half of the day, with the focus on potential recessions across the globe. It’s clear that central banks’ actions are having no evident effect on inflation, which continues to soar. Stocks plummeted, weighing on AUD/USD, although cooling expectations for an even tighter US monetary policy helped both bounce back. AUD/USD short-term technical outlook The daily chart for the… Read More »AUD/USD Forecast: Tepid buying leaves the door open for a lower low

Outlook: We get PPI today alongside jobless claims, but both pale in comparison to yesterday’s worse-than-expected CPI. It puts the Fed in a bind. If it’s data-dependent, the next hike should be 100 bp. If it wants message consistency, it needs to stay at 75 bp. The airwaves are jammed with opinion on which it will be and why. One idea is that if it does 100 bp this time, it will be a bridge too far and the Fed will have to retreat faster, sooner next year. For the market to knee-jerk jump to the 100 bp conclusion is normal but still foolish, and to say the Bank of Canada led the way is simply not true–its decision came hours after the CPI release, and besides, the US tends not to copy Canada (no offense). See the CME FedWatch tool. The probability of a 100 bp hike has jumped to 82.1%–from zero on July 7. Several Fed funds watchers note that front-loading hikes this year removes the need for more next year. For June 2023, 31% see the rate rising only another 75 bp from 2.5-2.75% at year-end, or 100 bp up from today. A lesser percentage (27.6%) see… Read More »How dare the Fed be mere mortals and misjudge data?

Outlook: We get PPI today alongside jobless claims, but both pale in comparison to yesterday’s worse-than-expected CPI. It puts the Fed in a bind. If it’s data-dependent, the next hike should be 100 bp. If it wants message consistency, it needs to stay at 75 bp. The airwaves are jammed with opinion on which it will be and why. One idea is that if it does 100 bp this time, it will be a bridge too far and the Fed will have to retreat faster, sooner next year. For the market to knee-jerk jump to the 100 bp conclusion is normal but still foolish, and to say the Bank of Canada led the way is simply not true–its decision came hours after the CPI release, and besides, the US tends not to copy Canada (no offense). See the CME FedWatch tool. The probability of a 100 bp hike has jumped to 82.1%–from zero on July 7. Several Fed funds watchers note that front-loading hikes this year removes the need for more next year. For June 2023, 31% see the rate rising only another 75 bp from 2.5-2.75% at year-end, or 100 bp up from today. A lesser percentage (27.6%) see… Read More »How dare the Fed be mere mortals and misjudge data?

The US Dollar extended its run of gains against most currencies on Wednesday, this on the back of a hot US CPI read, which only adds more pressure on the Fed to be needing to do more with rate hikes.

The post-US CPI volatility triggered good two-way price moves around EUR/USD on Wednesday. The energy crisis in Europe continued weighing on the euro and capped the attempted recovery. Aggressive Fed rate hike bets, recession fears underpinned the USD and favour bearish traders. The EUR/USD pair witnessed good two-way price moves on Wednesday and was influenced by the intraday US dollar volatility that followed the release of the US consumer inflation figures. The US Labor Department reported that the headline US CPI rose 1.3% in June and the yearly rate accelerated from 8.6% in May to 9.1% – the highest level since November 1981. The readings were above expectations and sealed the case for another large interest rate hike by the Federal Reserve. Adding to this, Atlanta Fed President Raphael Bostic said that everything is in play to combat persistently rising inflation pressures. The markets were quick to react and started pricing in the possibility of a historic 100 bps Fed rate hike move later this month. This, in turn, lifted the USD to a fresh 20-year high and dragged the pair briefly below the parity mark for the first time since December 2002. The initial market reaction, however, fizzled out… Read More »EUR/USD Outlook: Bearish potential intact amid Fed rate hike bets, recession fears

Europe European markets have seen another choppy and negative session after today’s US CPI report for June came in at sizzling hot 9.1%. The bigger than expected jump in inflation has raised the volume on the ever-growing drumbeat of recession, which is starting to make itself heard on a more audible basis. As has been the case globally, the surge was driven by higher food and energy prices, with US gasoline prices up almost 60% year on year. Today’s sell-off has been across the board with all sectors getting hit, with the best performers coming from commercial real estate as British Land and Land Securities claw back some of their losses from yesterday. The losses have been broad based, with IAG down after posting some decent gains yesterday, while the miners are also lower on weaker copper prices and rising global recession risks The Platinum Jubilee didn’t provide the pubs sector the boost that was originally envisaged if today’s Q4 numbers from JD Wetherspoon are any guide, with the shares slipping to their lowest levels since March 2020, after like for like sales fell by -0.4% over the same period as 2019. Despite getting permission to stay open longer over… Read More »Hot US CPI and monster rate hike from the Bank of Canada unsettles markets