June 1, 2022

“The euro has been finding support as the ECB have been hinting toward July rates lift-off at the same time that the odds of a September hike at the Fed have been dwindling – a slower hiking cycle could see uncomfortably high inflation remain into 2023.”

Sam Cornford, Partner – Head of Trading

Main Headlines

President Joe Biden will seek regional consensus on a new economic agenda to build on existing trade agreements with Latin America and present a plan to tackle increasing migration when he hosts the Summit of the Americas, senior US officials said yesterday. Previewing Biden’s priorities for the June 6-10 gathering in Los Angeles, administration officials said his message will be that “we can’t do business as usual” in the hemisphere. But they offered few specifics on how he would address the challenges exposed by the COVID-19 pandemic. Biden’s approach will be to take advantage of trade deals already in effect, the official said. Those could include the United States-Mexico-Canada Agreement and bilateral pacts with various Latin American countries. Attempts to forge a hemisphere-wide trade zone have never gotten off the ground. With Biden facing domestic pressure over the record number of migrants trying to enter the United States at the Mexican border, he is expected to seek help in stemming the flow of people north.

British companies expect barely any growth over the next three months, in their gloomiest outlook since February last year, as the cost-of-living squeeze reduces households’ disposable income, the Confederation of British Industry has said. A majority of consumer services companies expect sales to fall over the next three months as households rein in unnecessary spending, while manufacturers see growth and retailers and business services firms think output will be flat. The British Retail Consortium (BRC) reports that retailers raised prices at the fastest pace in more than a decade last month, driven by the rapidly rising cost of food and increased energy and transport costs for stores. Average prices among BRC members last month were 2.8% higher than a year earlier, the biggest annual increase since May 2011. The BRC’s measure of inflation covers a narrower range of goods than Britain’s official consumer prices index, which showed inflation hit a 40-year high of 9.0% in April off the back of surging energy prices and post-COVID bottlenecks.

GBP

Sterling is stronger against the euro and weaker against the dollar this morning. Credit card borrowing in Britain rose last month at the fastest annual rate since 2005, possibly reflecting a worsening cost-of-living squeeze that may now be starting to slow the housing market, Bank of England data has shown. The BoE said credit card borrowing was 11.6% higher than in April 2021. House prices rose by 0.9% month-on-month in May after a 0.4% rise in April, marking a 10th consecutive month of gains, but there has been a sharp drop in mortgage approvals in April – indicative of the slowdown ahead. Boris Johnson’s standards adviser says there is a “legitimate question” over whether the PM broke the ministerial code after getting fined for Partygate. The ministerial code outlines the rules government ministers must follow when in office, including the “overarching duty” on them to comply with the law. If the code is broken, the convention in Westminster is for a minister to resign.

EUR

The euro is weaker than most major currencies in the early morning trade. The US will send Ukraine more advanced rocket systems to help it defend itself, President Biden has announced. The weapons, long requested by Ukraine, are to help it strike enemy forces more precisely from a longer distance. Until now, the US had refused the request out of fear the weapons could be used against targets in Russia. But Biden has said the lethal aid would strengthen Kyiv’s negotiating position against Russia and make a diplomatic solution more likely. Russian Deputy Foreign Minister Sergei Ryabkov told state news agency RIA Novosti that Moscow views US military aid to Ukraine “extremely negatively”. French diplomats will go on strike for the first time in 20 years tomorrow, in protest against a perceived lack of recognition and reforms pushed by the president that they say could damage France’s global standing.

USD

The dollar is well bid against most major currencies overnight. US Treasury Secretary Janet Yellen has said that she was wrong in the past about the path inflation would take but insisted that taming price hikes is President Joe Biden’s top priority, and that he supports the Federal Reserve’s actions to achieve that. Yesterday, Biden met with Federal Reserve Chair Jerome Powell to discuss the historic inflation that’s draining American wallets, even as he assured the central bank chief that he would have freedom from political interference. Biden’s dealings with Powell stand in sharp contrast to former President Donald Trump’s approach, which involved routinely castigating Powell for the Fed’s interest-rate decisions and even threats to fire him. The White House is planning a media blitz to lift Biden’s sagging opinion poll numbers before November’s congressional election, promoting his management of America’s recovery from the coronavirus pandemic and efforts to cool spiralling inflation.

Markets

A tumultuous May for markets ended almost exactly where it started in equities, with a late session drop Tuesday depositing the S&P 500 less than a point higher than its level a month ago. It was a final twist in a month that saw volatility surge and debates rage around inflation, the Federal Reserve’s plan to subdue it and the impact on the economy. The S&P 500 fell 0.6% on Tuesday, bringing its monthly return to virtually zero. During the month of May, the benchmark index surged more than 8% after falling within points of a 20% drop from a record, signifying a bear market. Ten-year Treasury yields climbed 12 basis points to 2.85%, just below where they started the month. West Texas Intermediate oil was little changed, leaving it 10% higher in the month. And Bitcoin held above $31,000, down 17% in May. Equities began the day lower on worries inflation was proving more persistent, intensifying the debate over how quickly central banks will raise interest rates. Euro-zone consumer prices jumped 8.1% to a record from a year earlier in May.

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

8:00 a.m.: UK May Nationwide house price index
8:00 a.m.: Germany April retail sales
8:00 a.m.: Russia May manufacturing PMI
8:30 a.m.: Sweden May manufacturing PMI
10:00 a.m. Euro area May manufacturing PMI
10:00 a.m.: ECB’s Knot speaks
10:30 a.m.: UK May manufacturing PMI
11:00 a.m.: Euro area April unemployment rate
1:00 p.m.: ECB’s Lagarde and Villeroy speak
2:00 p.m.: Riksbank’s Breman speaks; ECB’s Panetta speaks
3:45 p.m.: US May manufacturing PMI
4:00 p.m.: US May ISM manufacturing
5:15 p.m.: ECB’s Panetta speaks
5:30 p.m.: ECB’s Lane speaks; BOE’s Hauser speaks; Fed’s Williams speaks
6:00 p.m.: Russia April industrial production, retail sales, unemployment
7:00 p.m.: Fed’s Bullard speaks
8:00 p.m.: Fed releases Beige Book

Corporate Events

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