July 11, 2022

“Treasury yields fell in the early London trade after jumping on Friday when data signalled an increase in job vacancies, boosting expectations that the Federal Reserve would hike rates by a minimum of 75 bps.”

Tim Hallinan – Trading Director

Main Headlines

Joe Biden makes his first journey to the Middle East as president this week because the disaster in world oil markets pushes him to reset relations with Saudi Arabia, a rustic he as soon as threatened to make a pariah state. Relations between the US and Saudi Arabia, allies historically tightly certain by oil and safety issues, reached a historic low within the wake of the homicide of journalist Jamal Khashoggi in 2018 and the battle in Yemen. The fallout from the battle in Ukraine, which has despatched world oil costs larger, has created a gap to place relations between Washington and the world’s largest crude producer again on observe, and ship dividends for either side, officers and analysts within the US and the Gulf say.

Two-thirds of business leaders expect rapid UK price rises to persist longer than the Bank of England hopes, with most not expecting inflation to peak until spring of next year. The views from a June survey of the Institute of Directors’ membership suggest that companies are planning to raise their prices in moves that are likely to embed high inflation more deeply in the UK economy. Evidence of persistent price and wage rises has been cited by numerous members of the BoE’s monetary policy committee as grounds for acting “forcefully” with interest rates. Even though financial markets have scaled back expectations of interest rate rises coming from the BoE in response to increased fears of a recession, traders in futures markets still expect a half point rise in interest rates next month.

GBP

Sterling is stronger against euro and weaker against the dollar this morning. A survey found that The number of UK households facing acute financial strain has risen by almost 60% since October. New UK chancellor, Nadhim Zahawi, is under pressure to explain his finances after it was reported that HM Revenue & Customs is carrying out an inquiry into his tax affairs. Senior Conservative party figures want to rapidly thin out the field of candidates to succeed Boris Johnson as bitterness between rival camps increases and a dossier attacking former chancellor Rishi Sunak was circulated. Boris Johnson’s allies aim to stop Rishi Sunak becoming Conservative party leader and are accusing the former chancellor of treachery for triggering the prime minister’s premature exit.

EUR

Sterling is stronger against euro and weaker against the dollar this morning. Hungary’s government has made a number of concessions to the European Commission in a protracted stand-off over rule of law and transparency failings, as it seeks to unlock about € 15bn worth of pandemic recovery funds amid a crisis in the country’s financial markets. Pressure is growing on regulators to formally scrutinise the data and rating providers who award investments high or low scores on environmental, social and governance principles. French Finance Minister Bruno Le Maire said Europe must prepare for Russian gas deliveries to be shut off entirely in retaliation for sanctions on the Kremlin.

USD

The dollar is well bid against most major currencies overnight. US inflation data in the coming week may stiffen the resolve of Federal Reserve policy makers to proceed with another big boost in interest rates later this month. Red-hot labour demand stoked another strong month of US jobs gains, defying expectations for a sharper slowdown and giving the Federal Reserve greater leeway to continue raising interest rates to stamp out soaring inflation. Joe Biden and Xi Jinping are set to talk again in coming weeks, Antony Blinken said after meeting with Foreign Minister Wang Yi in Bali for more than five hours. The US Secretary of State criticized China for supporting Russia’s Ukraine war but noted that both diplomats discussed ways to reduce risks while discussing contentious issues including Taiwan.

Markets

European stocks dropped along with US equity futures Monday as the risk of more Covid curbs in China exacerbated overarching worries about the global economic outlook. The dollar jumped and bonds gained. The Stoxx Europe 600 index shed about 1%, with carmakers and raw materials among the wort-performing sectors. Contracts on the S&P 500 and Nasdaq 100 were lower before the US earnings season gets underway. Twitter shares fell more than 8% on Germany’s Tradegate versus its US closing level, after Elon Musk terminated his $44 billion takeover approach of the social media company. A dollar gauge was back around the highest level since 2020, and the euro weakened closer toward parity with the greenback. Yields on US Treasury yields, and European bonds ticked lower.

Main Economic Data/Central Banks/Government (All Times CET)

10:00 a.m.: Norway June CPI
10:00 a.m.: Denmark June CPI
11:00 a.m.: Czech May retail sales
11:30 a.m.: Riksbank publishes June 29 minutes
12:00 a.m.: Italy May retail sales
6:15 p.m.: BOE’s Bailey testifies on financial stability
8:30 p.m.: ECB’s Nagel speaks
10:00 p.m.: Fed’s Williams speaks on Libor transition

To learn more about Ballinger & Co., please visit our website or our LinkedIn page.