June 10, 2022

“The rate hikes suggested by the European Central Bank on Thursday along with renewed fears over the upcoming US inflation data release are stirring uncertainty among investors – world stocks hit a two-week low as of this morning.”

Sam Cornford, Partner – Head of Trading

Main Headlines

White House officials are bracing for another grim report on inflation when the Labor Department releases its latest figures today, amid growing attacks from Republicans seeking to link President Joe Biden’s policies to rising prices ahead of the midterm elections. The White House expects the Labor Department’s release of May’s consumer price index, a key measure of inflation, to be “elevated,” driven by high fuel prices, White House press secretary Karine Jean-Pierre said Wednesday. Economists also forecast the report will show prices continued to rise last month at their highest pace in decades, on par with April’s inflation of 8.3 percent. White House officials have been increasingly looking to signal that inflation is a top priority for Biden, even as they acknowledge there is little Biden can do about it in the short term.

HSBC, Lloyds Banking Group and Standard Chartered have “shortcomings” in their plans to ensure they could fail without detriment to customers and taxpayers, the Bank of England said this morning. The regulator ordered them to fix issues including how they would fund themselves if they ran into trouble and how they would smoothly serve customers. The BoE said five other big UK banks must make “enhancements” to their resolution plans, which they were ordered to create as part of 2019 measures to make sure the bailouts of the 2007-08 crisis would not be repeated. The UK offshoot of Spain’s Santander was the only one of the UK’s eight top banks that came through the BoE’s first assessment of lenders’ resolution plans without any recommendations. HSBC was ordered to improve its strategy for funding itself through a crisis, and to improve its plans for how it would be restructured during its demise.

GBP

Sterling is weaker than most major currencies in the early morning trade. Rishi Sunak has been accused of squandering £11bn of taxpayers money by paying too much interest servicing the government’s debt. Calculations by the National Institute of Economic and Social Research show the losses stem from the chancellor’s failure to take out insurance against interest rate rises a year ago on almost £900bn of reserves created by the quantitative easing process. Millions of UK residents on housing benefit will be able to use their welfare payments to pay mortgages under a proposal set out by Boris Johnson yesterday. The head of Britain’s largest union has warned of potential strikes this year if the government does not heed its call for inflation-linked wage increases for staff in the NHS and local government.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Christine Lagarde yesterday sought to counter concerns that the European Central Bank was doing too little to fight surging inflation, announcing plans to lift interest rates above zero for the first time in a decade by September. Meanwhile, dovish rate-setters at the European Central Bank are leaving their meeting in Amsterdam disgruntled, after record inflation forced them into making concessions on the pace of interest rate rises over the coming months. Labour strife in Europe is driving expectations of more travel headaches during the busy summer season, with airports and airlines clamouring to find more workers, minimize cancelled flights and reduce delays for passengers.

USD

The dollar is well bid against most major currencies overnight. The Biden administration’s leading international energy adviser has called on India not to go “too far” as it increases imports of discounted Russian crude that has lost buyers in Europe. Big US banks including JPMorgan, Chase & Co., and Citigroup appear set for some earnings boost from a pick-up in the battered credit-card business, but a possible recession would pull consumers back and bring losses on outstanding loans. European gas prices jumped as of yesterday after an explosion at one of the biggest US liquefied natural gas export terminals, highlighting the fragility of global supplies as many countries attempt to cut their reliance on Russian energy. US-China relations are at their lowest ebb since Richard Nixon’s 1972 trip, said Nicholas Burns, Washington’s ambassador to Beijing.

Markets

European stocks extended losses as investors braced for US inflation data that may help decide the course of the Federal Reserve’s tightening path. The Stoxx Europe 600 Index fell more than 1%, with real estate and financial services sectors underperforming. US futures wavered after the S&P 500 shed 2.4% yesterday. Short-dated US Treasury yields hovered near 2022 peaks following a selloff in euro-area bonds after the European Central Bank opened the door to a half-point interest-rate hike later in the year. Investors will be closely watching the US inflation reading, which is expected to show annual consumer-price gains of more than 8%. The dollar slipped from a three-week high and the yen snapped a slide. Asia’s stock market was on the back foot Friday but off session lows as investors assessed China’s outlook and girded for US inflation data.

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

8:00 a.m.: Norway May CPI, PPI
8:00 a.m.: Denmark May CPI
9:00 a.m.: Spain May CPI
9:00 a.m.: Czech May CPI
10:00 a.m.: ECB’s Holzmann presents Austrian economic forecasts
10:00 a.m.: Italy April industrial production
10:30 a.m.: Bank of Italy releases banks and money monthly statistics
10:30 a.m.: BOE/TNS inflation expectation survey
12:00 p.m.: UK to sell bills
12:30 p.m.: Russia rate decision
2:00 p.m.: National Bank of Poland minutes
2:30 p.m.: US May CPI
5:00 p.m.: Bundesbank Chief Nagel speaks
Germany April Current Account Balance

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