July 22, 2022

“The European Central Bank raised interest rates by 50 bps yesterday – the first rate hike for more than a decade comes following record high inflation rates in the eurozone of 8.6%, more than four times the central bank’s target.”

Sam Cornford, Partner – Head of Trading

Main Headlines

The US Supreme Court on Thursday declined to reinstate President Joe Biden’s policy shifting the focus of America’s immigration enforcement toward public safety threats, handing a victory to Texas and Louisiana as they challenge a plan they call unlawful. Biden’s policy departed from the hard-line approach taken by the Democratic president’s Republican predecessor, Donald Trump, who sought to broaden the range of immigrants subject to arrest and removal. Biden took office last year promising a more humane approach to immigration. In announcing the new guidelines last September, Biden’s administration noted that US officials have long relied on setting enforcement priorities due to the estimated 11 million immigrants living in the country illegally. The policy would give agents more discretion to consider individual circumstances and prioritizes threats to national security or public safety. Republicans have criticized Biden’s administration, saying fewer detentions and deportations have encouraged more illegal border crossings.

British shoppers spent more money buying fewer goods from retailers in June as rising inflation pushed them to tighten their belts. The quantity of goods bought fell 0.1% from the previous month — the second consecutive decline — but consumers ended up spending 1.3% more than they did in May due to rising prices, according to official data. The figures released on Friday by the Office for National Statistics underscored the impact on household finances of surging inflation, which hit a 40-year high in the UK of 9.4% in June. Heather Bovill, ONS deputy director for surveys and economic indicators, said that the broader trend for retail sales “is one of decline.” Separate data published on Friday by research company GfK showed that UK consumer confidence remained at minus 41 in July, the lowest since records began in 1974. Joe Staton, client strategy director at GfK, said that confidence was “severely depressed this month as the impact of soaring food and fuel prices and rising interest rates continues to darken the financial mood of the nation.”

GBP

Sterling is stronger against the euro and weaker against the dollar this morning. Downing Street was accused of making “reheated announcements” after it unveiled a series of corporate measures — many of them months or years old — aimed at helping households cope with the cost-of-living crisis. David Buttress, former head of food delivery group Just Eat, was last month hired by outgoing prime minister Boris Johnson to find ways to ease the cost of living. Buttress on Thursday announced various discounts as part of a “Help for Households” campaign, saying the government had secured deals with companies including supermarket Asda and telecoms group Vodafone. Shadow business secretary Jonathan Reynolds said the “reheated announcements” showed a government that was running out of ideas. Britain’s spy chief said on Thursday that China was now the top intelligence priority for the Secret Intelligence Service (SIS), known as MI6, surpassing counterterrorism.

EUR

The euro is weaker than most major currencies in the early morning trade. The European Central Bank has raised interest rates by half a percentage point, pledging to prevent surging borrowing costs from sparking a eurozone debt crisis amid political turmoil in Italy and the resignation of prime minister Mario Draghi. It was the first ECB rate rise for more than a decade and twice the size of the increase mooted by the bank only last month. The move ends eight years of negative rates and raises the ECB’s deposit rate to zero. ECB president Christine Lagarde said it was “time to deliver” after eurozone inflation hit a record high of 8.6% in the year to June, more than four times the central bank’s target of 2%. MI6 chief Richard Moore said Russia was “about to run out of steam” in Ukraine, giving the country’s military a chance to strike back in the conflict he described as a “strategic failure” for Vladimir Putin. Moore said that while the conflict was “obviously not over”, Russia was making only marginal progress in its campaign.

USD

The dollar is well bid against most major currencies overnight. President Joe Biden will lay out plans on Thursday to ask Congress for $37 billion for crime prevention programs as he seeks to address one of the top concerns among Americans ahead of congressional elections in November. Biden will outline details of his Safer America Plan in a visit to Wilkes-Barre, Pennsylvania. The $37 billion will be included in his budget request to Congress for fiscal 2023, which begins October 1. His plans include $13 billion over the next five years to hire and train an additional 100,000 police officers, a White House fact sheet said. Biden has long rejected some progressive Democrats’ drive to “defund the police.” Joe Biden has contracted Covid-19 and has started taking Pfizer’s antiviral pill to combat the disease, the White House announced, adding that he is fully vaccinated with two additional booster shots and is experiencing “very mild symptoms”.

Markets

Stocks rose amid a rally in megacaps as strength in the corporate sector buoyed investor sentiment. Treasuries gained as data pointed to weakness in the US economy. The S&P 500 posted its biggest three-day gain since May 27, led by tech and consumer discretionary stocks on Thursday. Tesla Inc. topped the leaderboard after its quarterly results beat estimates, with Apple Inc. and Amazon.com Inc. also pushing higher ahead of earnings due next week. In post-market trading, Snap Inc. plunged more than 20% after the company reported revenue that missed estimates, citing a slowdown in the ad industry. That weighed on social-media peers Meta Platforms Inc. and Pinterest Inc. Treasury yields dropped, with the 10-year rate sinking 14 basis points to 2.88% after a knee-jerk move higher following the European Central Bank’s greater-than-expected rate hike. Markets were buffeted in early trading after the ECB hiked rates by 50 basis points, the first increase in 11 years and biggest since 2000.

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

8:00 a.m.: UK June retail sales
9:00 a.m.: ECB’s Villeroy speaks
9:15 a.m.: France July S&P Global PMIs
9:30 a.m.: Germany July S&P Global/BME PMIs
10:00 a.m.: ECB survey of professional forecasters
10:00 a.m.: Euro-area July S&P Global PMIs
10:30 a.m.: UK July S&P Global/CIPS PMIs
11:00 a.m.: Iceland July CPI
12:00 p.m.: UK to sell bills
12:00 p.m.: Ireland June PPI
12:30 p.m.: Russia rate decision

Corporate Events

Earnings include Amex, Reliance, Verizon, NextEra Energy, Lonza, Sika, Schindler, Danske Bank, Norsk Hydro, Autoliv

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