Morning Report

July 29, 2022

“The US economy shrank for a second consecutive quarter, meeting the widely accepted criteria for a technical recession – however, the White House maintains that the US economy is not at present in a recession.”

Tim Hallinan – Trading Director

Main Headlines

The US economy shrank for a second consecutive quarter, meeting one of the common criteria for a technical recession and complicating the Federal Reserve’s push to stamp out soaring inflation with a string of aggressive rate rises. Data published by the commerce department on Thursday showed gross domestic product fell 0.9% on an annualised basis in the second quarter, or a 0.2% fall from the previous quarter. This follows first-quarter GDP data showing the US economy shrank 1.6% in the first three months of 2022. Back-to-back quarterly contractions meet one definition of a recession, although the US relies on a determination by a group of researchers at the National Bureau of Economic Research who look at a broader range of factors. The White House has maintained that the US economy is not at present in a recession, with Treasury secretary Janet Yellen saying earlier this week that she would “be amazed” if the NBER declared it was. She underscored that message at a press conference on Thursday, emphasising that the economy “remains resilient”.

Foreign secretary Liz Truss has rejected suggestions of a windfall tax on the profits of energy companies, despite British Gas owner Centrica’s announcement of huge earnings amid calls for increased support with fuel bills for struggling UK households. Truss, who in recent weeks has led the polling in the race to become leader of the Tory party and the next prime minister, said the move would “send the wrong message” to the world, adding that the government should be encouraging Shell and other companies to invest in the UK. Speaking to Conservative members in Leeds on Thursday during the first of 12 party hustings, Truss argued that, in the face of a global economic crisis and war in Ukraine, now was “not the time for the status quo”, as she outlined policies to boost growth and rein in the cost-of-living crisis. “What I would do is create low-tax investment zones, encouraging those companies to invest in our country,” she told the audience.


Sterling is stronger against the dollar and weaker against the euro this morning. Strike action threatens to shut the UK’s largest container port next month, bringing further disruption to the country’s transport network as talks in the rail dispute remained deadlocked. The Unite union said its members at Felixstowe port had voted “overwhelmingly” for industrial action in a dispute over pay and warned that a strike would bring the harbour facility on the Suffolk coast to a standstill and cause “major logistical problems” for maritime and road haulage transport. Britain will investigate whether fashion brands ASOS, Boohoo and George at Asda are misleading shoppers about the environmental sustainability of their apparel, the country’s competition watchdog said on Friday. It will examine whether the language used in marketing some apparel is too broad or vague and whether the criteria used by the companies to label products as environmentally sustainable might be lower than customers might expect.


The euro is well bid against most major currencies overnight. German inflation rose to 8.5% in July, driven by a surge in food prices, adding pressure on the European Central Bank to continue raising interest rates despite the mounting risk of a recession in the currency area. While annual inflation in German food prices hit 14.8% in July, up from 12.7% in June, energy price inflation was 35.7%, down from 38%. Russia’s invasion of Ukraine and the subsequent disruption to energy supplies, as well as supply chain interruptions caused by the Covid-19 pandemic, were the underlying causes of the price pressures. French President Emmanuel Macron was hosting Saudi Crown Prince Mohammed bin Salman on Thursday as part of increased Western efforts to court the major oil-producing state amid the war in Ukraine and faltering talks to revive a nuclear deal with Iran. Macron has dismissed criticism of his efforts to engage the crown prince by saying the kingdom was too important to be ignored.


The dollar is weaker than most major currencies in the early morning trade. Congress has passed the $280 billion Chips and Science Act, handing US president Joe Biden an eleventh-hour legislative victory before the upcoming midterm elections. The chips legislation will provide $52 billion in subsidies for US chip manufacturers and more than $100 billion in technology and sciences investments, including the creation of regional innovation hubs and expanding the work of the National Science Foundation. Chinese leader Xi Jinping warned against playing with fire over Taiwan in a call with US President Joe Biden on Thursday, highlighting Beijing’s concerns about a possible visit to the Chinese-claimed island by US House Speaker Nancy Pelosi. “Those who play with fire will perish by it,” China’s foreign ministry quoted Xi as telling Biden in their fifth call as leaders. “It is hoped that the US will be clear-eyed about this.”


Stocks in Europe and the US are set for their biggest monthly advance since November 2020 on positive earnings and expectations of shallower Federal Reserve monetary tightening. The banking sector outperformed in Europe after a slate of better-than-expected results from Banco Bilbao Vizcaya Argentaria SA, Standard Chartered Plc and BNP Paribas SA. Hermes International rose more than 7% after joining LVMH and Kering SA in posting strong results, showing the luxury consumer is resilient so far to high inflation and worries over a potential economic downturn. Nasdaq 100 futures added more than 1% after the US stock market hit a seven-week high Thursday. Inc. and Apple Inc. rose in premarket trading after both companies beat revenues estimates. The tone was more sombre in Asia, hampered by a tumble in Chinese tech shares that dragged Hong Kong toward a correction of more than 10% from a June high. A downbeat economic growth assessment from China’s top leaders and a lack of new stimulus policies contributed to the dour regional mood.

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

8:00 a.m.: Sweden June retail sales
9:00 a.m.: Sweden July economic tendency survey
9:00 a.m.: Spain June retail sales, 2Q unemployment rate
9:00 a.m.: Hungary central bank sets one-week deposit rate
11:00 a.m.: Euro area July consumer confidence
11:00 a.m.: Italy sells bonds
2:00 p.m.: Germany July CPI
2:30 p.m.: US initial jobless claims, 2Q GDP, 2Q core PCE
3:00 p.m.: ECB’s Visco speaks
Turkey central bank amends inflation outlook Biden meets with CEOs from key sectors

Corporate Events

Earnings include Linde, Sanofi, L’Oreal, Amazon, Apple, Merck & Co., Sirius, Carlyle, AGCO, Baxter, Royal Caribbean, Mastercard, Honeywell, Harley-Davidson, Pfizer, Comcast, PG&E, Hershey, Brunswick, Weatherford, Southwest Airlines, Southern Co, Hertz, First Solar, Roku, Intel, US Steel


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