29 June 2022
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Central bankers gather at ECB conference in Portugal

By Daniel Richards

  • Christine Lagarde’s opening address to the ECB’s annual conference in Portugal was broadly in line with expectations with the ECB President signalling a 25bp hike in July followed by a larger move in September if inflation remained “undesirably high”. However, she noted that inflationary pressures were not only due to food and energy supply shocks but because of strengthening domestic demand and that wage growth was starting to pick up. German CPI for June is due to be released today, with forecasts expecting it to remain unchanged from May at 7.9%.
  • Meanwhile Fed presidents John Williams and Mary Daly maintained that a soft-landing in the US was possible, even with a more aggressive pace of tightening than had been expected at the start of the year. While they expect growth to slow sharply, they do not expect the economy to contract. Fed Chair Powell is due to speak in Portugal today.
  • The Conference Board consumer confidence index fell to a 16-month low of 98.7 in June, with the May reading revised lower as well.  The reading was below the median forecast, with the expectations index the lowest in nearly a decade. High inflation continues to weigh on sentiment, although intentions to buy durable goods are holding up for now.
  • The Richmond Fed manufacturing index showed a second month of contraction in activity among factories in the mid-Atlantic area of the US, as new orders and shipments declined in June. However employment and wages continued to rise, and supply chain constraints appear to be easing. Firms surveyed were more pessimistic about the outlook in the next six months.  
  • Turkey has dropped its opposition to Finland and Sweden joining NATO, as the alliance summit got underway in Spain yesterday. The accession process will take a few months as the new memberships will need to be ratified by member countries’ parliaments.

Today’s Economic Data and Events

  • 16:00 GE CPI (Jun) forecast 0.4% m/m and 7.9% y/y
  • 16:30 US GDP (Q1 final) forecast -1.5% q/q annualized
  • 16:30 US Personal consumption (Q1) forecast 3.1%
  • 16:30 US Core PCE (Q1) forecast 5.1%
  • 17:00 Powell, Lagarde, Bailey speak at ECB conference

Fixed Income

  • US Treasury markets showed some two way moves overnight before ultimately settling the day slightly higher on more deterioration in consumer sentiment, at least as recorded by the Conference Board consumer confidence index. Yields on the 2yr UST closed lower by 1bps to 3.1096% while the 10yr yield fell by about 3bps to 3.1715% with both maturities extending their gains in early trading today.
  • The peak in market implied rates is continuing to move forward and move lower with policy rates priced in to turn lower from the middle of 2023 and level off by the end of 2023 at around 3.1%. Fears of a recession are clearly driving markets now more than the inflation narrative that central banks have been targeting in the past month.
  • European bond markets showed a different story, however, with yields up across the board. The 10yr bund yield rose by 8bps to 1.62% while French yields added almost 10bps to 2.169%. In the UK, the 10yr gilt yield gained 7bps to 2.46%.
  • Emerging market bonds pushed lower with yields on the 10yr South African bond up 11bps to 10.86% while 10yr Indian government bond yields added 5bps to 7.465%.             


  • Risk sentiment evaporated once again overnight, helping to push the US dollar higher against most peer currencies. The broad DXY index added 0.55% with much of the gains coming from EURUSD, which fell by 0.6% to 1.0519, while USDJPY added another 0.5% to 136.14. GBPUSD dropped by 0.66% to push back below the 1.22 level, closing at 1.2184.
  • In commodity currencies, USDCAD managed to hold relatively steady at around 1.2875. AUDUSD fell by 0.3% to 0.6908 while NZDUSD dropped by 1% to 0.624 as both markets are interpreted as having a high beta to recession risks.


  • The day started relatively positively yesterday. The Shanghai Composite closed up 0.9% and the Nikkei 0.7%. In Europe there were gains across the board, with the DAX, CAC and the FTSE 100 adding 0.4%, 0.7% and 0.9% respectively.
  • Locally, the DFM, the ADX and the Tadawul closed up 1.1%, 1.9% and 2.1% respectively.
  • Sentiment turned negative again towards the end of the day however, and equity markets resumed their downward trend once more. In the US, the NASDAQ dropped -3.0%, while both the S&P 500 and the Dow Jones ended the day -2.0% lower. Asian markets have followed suit in early trading this morning.


  • Oil prices pulled higher overnight as markets switched back to looking at supply risks. Brent futures added 2.5% to USD 117.98/b while WTI added 2% to USD 111.76/b. Data from the API revealed a drop in US commercial crude stocks last week of 3.8m bbl last week along with a draw at Cushing of 650k bbl. Gasoline and distillates inventories were higher, however.

Click here for charts and tables

Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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