Daily Market Outlook, June 14, 2022

Overnight Headlines

Risk-off sentiment prevailed during the Asian trading session on concerns that US monetary policy will have to tighten aggressively to tackle inflation. Rising Covid case numbers in Beijing have also weighed on market sentiment. European and US equity futures, however, point to a rebound. The Fed announces policy on Wednesday and is expected to raise interest rates by 50bp, but rate-setters may be considering a bigger move. US Treasury yields reached new multi-year highs, while the S&P closed more than 20% below its peak.

Ahead of Thursday’s Bank of England policy update, latest UK labour market data released this morning showed an unexpected rise in the unemployment rate from 3.7% to 3.8% in the three months to April. The consensus forecast was for a decline to 3.6%. Both employment and unemployment rose, while the economic inactivity rate fell. Headline annual earnings growth edged down to 6.8% from 7.0%, while underlying wage growth (excluding bonuses) was steady at 4.2%. The number of unfilled vacancies reached a new high of 1.3 million in the three months to May, although the pace of increase continued to slow.

In the Eurozone, the German ZEW investor survey will be released this morning. Both the current situation and the expectations indices are expected to have improved from last month but to remain negative. Look for the current situation index to have moved up to -32 from -36.5 and the expectations index at -28 from -34.3.

ECB Executive Board member Schnabel speaks this evening. Her speech on ‘euro area bond market fragmentation’ could be interesting in the context of market disappointment that new measures to counter widening intra-euro yield spreads were not provided after last week’s ECB policy update.

In the US, the NFIB small business optimism index will probably be slightly lower than April’s 93.2. Indications of production pipeline inflationary pressures will come from producer price inflation which is expected to remain elevated at 10.7%y/y in May. That comes after last week’s CPI inflation data which surprised on the upside and prompted speculation of more aggressive Fed policy tightening.

Early Wednesday, markets will be watching for signs that the Chinese economy has partially recovered from April’s lows. The year-on-year contractions for both retail sales and industrial production in May are forecast to be less negative than in April.