June 24, 2022

“UK consumer confidence has plummeted to the lowest levels recorded since records began in 1974 and business sentiment hit a two-year low following a rapid rise in the consumer price index, which hit a 30-year high of 9.1% in May.”

Tim Hallinan – Trading Director

Main Headlines

The US Federal Reserve on Thursday gave passing grades to all 33 of the country’s biggest banks in annual stress tests, which gauged each lender’s ability to weather a severe economic downturn. In a series of doomsday hypothetical scenarios drafted by the Fed, the banks would collectively lose $612 billion, and the group’s capital ratios would decline to 9.7%, more than double the minimum requirement, the Fed said. The results are an endorsement of the financial strength of the largest US banks, some of which are classified by regulators as systemically important to the economy. The bulk of the hypothetical losses came from $450 billion in loan losses and $100 billion in trading and counterparty losses. Compared to last year’s stress tests, the banks reported more than $50 billion in additional losses and took greater hits to their capital reserves. The passing grades, which analysts had expected, come amid growing concerns of an impending economic downturn.

UK consumer confidence has fallen to its lowest level since records began nearly 50 years ago as surging inflation hits households’ finances and the wider economy. The sharp rise in the consumer price index, which in May reached a 30-year high of 9.1%, also led business sentiment to fall to the lowest level seen in two years, according to separate figures from the S&P Global/CIPS UK purchasing managers’ survey. The UK consumer confidence index, an indicator of people’s perceptions of their personal financial situation and general economic conditions, decreased one point to -41 in June, the lowest since records began in 1974. Joe Staton, client strategy director at GfK, said the fall reflected prices rising faster than wages and the prospect of strikes and spiralling inflation causing a summer of discontent. The index, based on interviews carried out in the first half of June, showed a particularly large drop in expectations regarding personal finances as rapidly rising prices squeeze what consumers can buy.

GBP

Sterling is stronger against the dollar and weaker against the euro this morning. Fraudsters are using the cost-of-living crisis to expand their scams, with a sharp rise in energy-related schemes that exploit Britons’ desire to save money on electricity and gas bills, according to analysis of official data. Cons mentioning the names of the UK’s biggest energy companies rose 10% year-on-year in the first quarter of 2022. Banks are boosting interest paid to savers following this month’s rise in official lending rates, taking the best deal for three-year bank deposits to 3% for the first time in almost a decade. Following last week’s increase in the Bank of England base rate, smaller lenders that generally lead the market have jacked up the rates paid to savers. British Prime Minister Boris Johnson today pledged to do more to tackle a cost-of-living crisis and listen to people’s concerns after suffering bruising defeats in two by-elections.

EUR

The euro is well bid against most major currencies overnight. European Union leaders on Thursday granted Ukraine the coveted status of official candidate to join their 27-nation club, a bold geopolitical step hailed by Kyiv and the EU itself as a “historic moment”. Although it could take Ukraine more than a decade to eventually join the bloc, the decision to officially accept it as a candidate is a symbol of the EU’s intention to reach deep into the former Soviet Union. Six years to the day after Britons voted to leave the EU, Ukraine’s neighbour Moldova was also granted candidate status, and Georgia, another ex-Soviet state, was told it would get the same once it has fulfilled more conditions. Euro zone business growth has significantly slowed this month – and by much more than expected – as consumers concerned about soaring bills opted to stay at home and defer purchases to save money.

USD

The dollar is weaker than most major currencies in the early morning trade. Support among top US Federal Reserve officials is growing for another 0.75 percentage point rate rise at the next policy meeting in July, as the central bank reinforces its commitment to tackling soaring prices. At a House of Representatives hearing on Thursday, Powell said the Fed’s commitment to restoring price stability is “unconditional”, suggesting a willingness to stomach job losses and even a recession in order fulfil that goal. Wall Street banks are taking steep losses on corporate bond deals signed before the latest downturn in financial markets, as investors demand bigger discounts and higher yields to lend to companies. A U.S. House of Representatives panel passed a bipartisan online privacy bill on Thursday that aims to limit the collection of personal data, though doubts remain as to whether it will become law.

Markets

US Treasuries rallied after another batch of economic data fell short of expectations, ratcheting up recession worries. American equities advanced as the decline in yields made stocks relatively more attractive. The S&P 500 ended almost 1% higher after waffling throughout the day and is now up more than 3% in the past three days. The tech-heavy Nasdaq 100, whose members have been more sensitive to the rise in bond yields, jumped 1.5%. The 10-year yield fell back below 3.10% just nine days after spiking to within a whisker of 3.50%. Commodities from oil to copper remained under pressure as signs of waning demand mounted. Data on Thursday did little to boost sentiment about a global economy battered by a flurry of central bank rate increases. Jobless claims hovered near a five-week high, while manufacturing and services activity in the US cooled in June, lagging estimates, and adding to worries the Fed’s efforts to fight inflation will upend growth.

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

8:00 a.m.: UK May retail sales
9:00 a.m.: Spain 1Q GDP
10:00 a.m.: Germany June Ifo survey
10:00 a.m.: Italy June consumer, manufacturing confidence
10:00 a.m.: Poland May unemployment rate
12:30 p.m.: ECB’s de Cos speaks
3:00 p.m.: Belgium June business confidence
3:30 p.m.: BOE’s Pill speaks
3:45 p.m.: BOE’s Haskel speaks
4:15 p.m.: ECB’s Centeno speaks

Corporate Events

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