Daily Wrap Up 29 June 2022

29 Jun 2022 04:46 PM

Europe suffers, dollar dominates

The major declines posted in US stock markets last night have set the tone for European equities today. To make matters worse for Europe, Philip Lane, the chief economist of the European Central Bank, warned the currency bloc is facing two challenges – high inflation and slow growth. There was mixed inflation data in the region today as Spanish CPI jumped to 10.2%, while the German report cooled from 8.7% to 8.2%. On Friday, the latest eurozone CPI data will be posted, and economists are expecting it to increase from a record high of 8.1% to 8.5%. Continental markets are suffering as the DAX and the CAC are down 1.6% and 0.9% respectively.

A few central bankers spoke today, and the ECB’s Christine Lagarde, said the bank said will have to wait for Friday’s inflation data before they make any make any decisions. At the last ECB meeting, the body issued a strong signal that rates will be lifted by 25 basis points. Andrew Bailey, of the Bank of England, announced that if inflation remains persistently high, he will consider acting more forcibly. This come a few weeks after the bank lifted rates by 25 basis points, but there was a lot of speculation the hike would be 50 basis points. The Fed chair, Jerome Powell stressed the biggest risk would be a failure to restore price stability. Mr Powell admitted it is possible the Fed might over-do it in regards to lifting interest rates, but also said the risk of such a situation is low, then again, the Fed were slow to start tightening monetary policy.

The Dow Jones was a little on the volatile side as trading got underway but now things have settled down. The index is a touch higher as it has pulled back a small portion of the ground it lost yesterday. Bond yields have dipped due to the mild risk-off sentiment in the markets.

It has been another strong session for the US dollar as Fed member, Loretta Mester, announced she would support a 75 basis points hike next month if the current conditions remain. The dollar is up over 0.4%. USD/JPY printed a new 22 year high as a result. GBP/USD and EUR/USD are in the red. Gold has swung into negative territory in the face of the robust US dollar, silver has been dragged lower too.  WTI has retreated after the EIA report revealed that US oil output hit 12.1 million barrels per days last week – the highest level since 2020.

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