June 13, 2022

“With annual inflation rising at its fastest pace since 1981, expectations of a 75 basis-point move are on the rise, and while the dollar has surged to four-week peaks, the combination of high inflation and monetary tightening is sending US consumer sentiment to a record low.”

Tim Hallinan – Trading Director

Main Headlines

US Food and Drug Administration staff reviewers on Sunday said Pfizer-BioNTech’s, COVID-19 vaccines were effective and safe for use in children aged 6 months to 4 years. The FDA reviewers said in briefing documents published on Sunday evening that their evaluation did not reveal any new safety concerns related to the use of the vaccine in young children. The FDA analysis of data from Pfizer’s trial was published ahead of a June 15 meeting of its outside advisers. Recommendations from the external advisers will determine the FDA’s decision on the vaccines. US President Joe Biden’s administration expects vaccinations for young children to begin in earnest as early as June 21 if the FDA and the Centers for Disease Control and Prevention approve the vaccines.

The UK’s foremost business lobby group has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy. The Confederation of British Industry (CBI) said immediate talks with the EU, rather than political grandstanding, were needed to resolve the impasse over the protocol, which governs post-Brexit trade between the EU, Northern Ireland, and Great Britain. Boris Johnson’s government is preparing to launch new legislation on Monday that would give ministers power to scrap parts of the protocol, despite intense criticism from businesses and opposition MPs and the threat of retaliation from Brussels.

GBP

Sterling is weaker than most major currencies in the early morning trade. Boris Johnson has been accused by Tory MPs of “damaging the UK and everything the Conservatives stand for” as he prepares to publish a bill to rip up his 2020 Brexit deal with the EU covering trade with Northern Ireland. The UK is poised to strike a deal to keep open a coal-fired power station that was set to close as the government scrambles to strengthen its domestic energy security. Ministers and EDF are expected to finalise plans this week to extend the life of the West Burton A power station in Nottinghamshire, run by the French energy company, from October to March. The head of a landmark review of England’s food system has called for “much bolder” action to address climate change and obesity after government proposals focused on production were attacked by campaign groups.

EUR

Euro is stronger against sterling and weaker against the dollar this morning. French President Emmanuel Macron’s centrist alliance won the first round of lower house elections on Sunday by a razor-thin margin over the left bloc of Jean-Luc Melenchon although it is likely to extend its lead in next weekend’s second-round runoff. Macron’s alliance of centrist parties won 25.75% of the popular vote on Sunday, while Melenchon’s NUPES bloc came in second with 25.66%. Italian voters snubbed a weekend referendum on changes to the justice system, dealing a blow to Matteo Salvini, the leader of the rightist League party, who had championed the plebiscite. Russian forces have blown up a bridge linking the embattled Ukrainian city of Sievierodonetsk to another city across the river, cutting off a possible evacuation route for civilians.

USD

The dollar is well bid against most major currencies overnight. US consumer price growth surged in May, accelerating 1 per cent, as rising energy and services inflation added urgency to the Federal Reserve’s plans to aggressively tighten monetary policy. A bipartisan group of US lawmakers urged US Trade Representative Katherine Tai to push during World Trade Organization meetings this week for an extension of a moratorium on tariffs on digital trade that has been in place since 1998. More than 100 trade ministers from the WTO’s 164 members are meeting in Geneva this week, but the 27-year-old trade body remains deeply challenged by crises ranging from Russia’s war in Ukraine to the COVID-19 pandemic. Joe Biden cautioned that US inflation could last “for a while” after data on Friday showed that politically sensitive price pressures unexpectedly accelerated in recent weeks.

Markets

European equities joined a global selloff following a surprise American inflation print that heaped pressure on the Federal Reserve to intensify monetary tightening. Treasury yields traded at a multi-year high. The Stoxx 600 dropped 1.3% to its lowest since early March, S&P 500 futures sank as much as 2.1%, and Nasdaq 100 futures were down by as much as 2.5%. The S&P 500 is flirting with a bear market after Friday’s shock consumer prices report ignited a more than $1 trillion selloff. Yields on 10-year US Treasuries reached 3.24%, the highest since October 2018, and a selloff in European government bonds also gathered pace, with the yield on German’s two-year government debt rising above 1% for the first time in more than a decade. The global exodus from stocks and bonds is gaining momentum on fears that inflation will force central banks to squash economic growth with higher interest rates.

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

8:00 a.m.: UK April GDP, industrial production
8:00 a.m.: Norway monthly GDP
9:00 a.m.: Spain April house transactions
9:00 a.m.: Turkey April current account, industrial production
10:00 a.m.: Italy unemployment rate
10:00 a.m.: ECB’s Holzmann, Simkus speak
11:30 a.m.: Germany sells bills
12:00 p.m.: Israel May trade balance
1:00 p.m.: ECB’s Guindos speaks

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