Market News: Monday 27th June 2022 – Stocks rebound as inflation fears subside

Created: 28th June 2022
A risk-on move last week with equities rallying, bond yields falling and the USD giving just a little ground…

Review of last week’s key action

FTSE +192 +2.74% DOW +1,611 +5.39% S&P +236 +6.45% NASDQ +809 +7.49% DAX Unchanged NIKKEI +528 +2.04% Hang Seng +644 +3.06% 

Market sensitivity ebbs and flows between what’s good and bad news for the economy. Usually the market would be quite sensitive to poor economic data – which would imply that economy’s economic activity would be slowing. That’s usual. What happened last week and especially on Friday last week was the release of some particularly poor consumer sentiment numbers that caused equities to rally sharply. A bear market rally? The market just correcting after nasty falls the previous week? Whatever the cause, equities had their best day since May 2020 and the second-best week this year. 

So, Friday’s numbers. The Consumer Index fell to 50 in June’s final reading which is the lowest on record. However, the five-year inflation expectations got revised lower to 3.1% from the preliminary estimate of 3.3% (a 14-year high). Now that matters because it will/could affect Fed thinking on future rate rises. 

Investors were also reassured by St. Louis Fed President James Bullard, who said worries over a US recession are overblown. Looking at futures contracts that look to predict future rate rises, the scale of rate rises by year end moderated, albeit only slightly.

Looking at some of the moves in base metals it appears that some inflationary pressures are subsiding somewhat. Copper has fallen sharply over the past 2 months with the rolling lock downs in China and the war in Ukraine. Copper has fallen to a 16-month low, reflecting a recession in industrial metals brought about by the ongoing global economic slow-down.

EURUSD +0.64 +0.61% GBPUSD +0.54 +0.44% USDJPY +.31 +0.22%. 

The forex markets were largely quiet last week with speculative attention still focussed on the Japanese Yen. Hedge funds are placing bets that the Bank of Japan (BOJ) will succumb to the pressures of inflation and give up on protecting the yield on the JGB (Japanese Government Bond). The Japanese Yen / USD rate has fallen from 115 to 135 in just 15 weeks as the BOJ sticks to its ultra-loose monetary policy. 

Gold -13 -0.7% UK OIL unchanged US OIL -2.48 -2.25% Bitcoin +776 +3.8% 

Oil moved sideways to lower last week following the previous week’s sharp falls. The G7 are discussing a price cap on Russian Oil, which the US and EU are keen to implement. The risk is that any further action will provoke a response from Russia and a potential reduction in oil supplies to the West. 
Gold continues to trade sideways in a broad band between 1805 and 1875. Crypto continues to track equities with the risk on move last week providing a little respite to the speculative sector.

Data / events for the week ahead

G7 Two more days of G7 Leaders summit in Germany. Discussions around cost of living crisis, war in Ukraine and support for Kyiv, including a potential price cap on Russian Oil. 
US Core Durable Goods. Softer. 

EUROZONE Lagarde speaking at the ECB Forum on Central Banking, in Portugal. 
US Conference Board – Consumer Confidence. Key release about consumer well-being. 

Germany Prelim CPI. Pace slowing? 
US FOMC Member Meister speaking about “The role of inflation expectations in monetary policymaking" at the ECB Forum on Central Banking, in Portugal. Could be interesting for market watchers. 
US Final GDP reading for Q1. 
EUROZONE Lagarde speaking. Followed by BoE Bailey and Jay Powell from the Federal Reserve. More CB hot air about inflation. 

US Core PCE Price Index m/m. A favourite measure of inflation used by Federal Reserve. 

US ISM Manufacturing PMI. Softening again? USD / Equities sensitive.