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European major indices close down sharply

The m Germanyajor European indices are all closing lower on the day. The declines are led by the German DAX which is down -1.7% and Italy’s FTSE MIB which is down by a similar amount. A look at the closing levels shows:

  • German DAX, -247.19 points or -1.71% at 14198.81
  • France’s CAC -90.17 points or -1.4% at 6358.47
  • UK’s FTSE 100 -116.81 points or -1.54% at 7476.20
  • Spain’s Ibex, -131.5 points or -1.49% at 8711.21
  • Italy’s FTSE MIB -122 points or -1.75% at 23813

In the European debt market, benchmark 10 year yields moved sharply higher with the Italian 10 year rising by 22 basis

points to 3.696%.Europe

Looking at the Italian 10 year yield, it traded to the highest level since November 2018, and is entering a swing area between 3.679% and 3.850%. The 50% midpoint of the move down from the 2012 high yield comes in at 3.891%. Since the low yield in January 2021 near 0.472%, the yield has moved up 324 basis points.

Italy

ECB sources: some ECB policymakers wanted a 50 basis point hike in July

The regular ECB sources comments are coming out. They say:

  • Some ECB policymakers at Thursday’s meeting wanted a 50 basis point hi already in July
  • Large majority of ECB governing Council was against making announcement on fragmentation fighting tool
  • The EURUSD remains nearer the low extremes since May 23.

    EURUSD
    EURUSD still trades nearer the lower extremes

ECB forecasts see 2022 inflation at 6.8% vs 5.1% in March

  • 023 forecast 3.5% vs 2.1% in March
  • 2024 forecast 2.1% vs 1.9% in March

Core HICP:

  • 2.2% in 2022
  • 2.8% in 2023
  • 2.3% in 2024

GDP:

  • 2022: 2.8% vs 3.7% in March
  • 2023: 2.7% vs 2.8% in March
  • 2024: 2.1% vs 1.6% in March

 Inflation  is projected to be slightly above target in 2024 at the end of the forecast period. The statement indicates the ECB will stick to gradual hikes for longer than the market believes.

The risk is that falling growth tanks demand. Those GDP forecasts look awfully rosy to me.

ECB the highlight of the agenda in Europe today

The euro is holding steadier ahead of the ECB policy decision later today, being the only currency to outperform the dollar in trading yesterday. That said, the gains are more measured and EUR/USD remains in consolidation ahead of the key risk event:

EURUSD D1 09-06

Risk tones were more sluggish yesterday as equities retreated, continuing the back and forth mood this week. That comes as Treasury yields rose once again with 10-year yields back above the 3% (currently at 3.038%). European bond yields also remain perky ahead of the ECB, awaiting tips about what the central bank may decide in July. 10-year German bund yields are at their highest since 2014, above 1.35%.

China May 2022 trade balance: CNY 502.89bn (expected 448bn)

  • expected CNY 448.9bn, prior was CNY 325.1bn

Exports +15.3% y/y:

  • expected +13.1%, prior was +1.9%

Imports +2.8% y/y:

  • expected 2.0%, prior was 0.0%

USD terms
China trade balance: US$78.76bn

  • expected $58.0bn, prior was $51.1bn

Exports: +16.9% y/y

  • expected 8.0%, prior 3.9%

Imports: +2.8% y/y

  • expected -9%, prior was -2%

A much improved performance for trade, inbound and outbound, for the month of May compared with April. This is a good sign for improvement ahead for the Chinese economy, which will be welcome domestically and globally.

As p[art of the data is this:

January – May oil imports down 1.7% y/y. That’s not a lot given the extent of the lockdwon impacts and is a bullish sign for oil as China’s economy incrementally reopens in the weeks and months to come.

Preview of the ECB monetary policy meeting – statement then Lagarde speaking 09 June 2022

ecb 09 June 2022

European Central Bank President Lagarde will follow up with her press conference at 1230 GMT.

  • widely expected to tee up the end to net purchases under the Asset Purchase Program in early July and set the scene for the first rate hike of the cycle that is likely to be delivered on July 21st. That would generally be consistent with Lagarde’s guidance that was provided on May 11th when she said:
  • “The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases. We have not yet precisely defined the notion of ‘some time,’ but I have been very clear that this could mean a period of only a few weeks.”

Then, for Lagarde:

  • Global financial markets will be particularly attuned to whether Lagarde offers guidance toward a gradual initial pace of lift-off defined as a quarter-point hike, or a half percentage point hike as some of her colleagues prefer.
  • Markets lean more toward the quarter-point scenario with the deposit facility rate expected to rise by 125–150bps by year-end into early 2023 (chart 7). Inflation that is running at over 8% y/y with core at just under half that would lend itself to a quickened pace of lessening massive monetary policy stimulus.

UAE Energy Min says just wait until China oil demand is back! (I’m paraphrasing)

Comments overnight from the United Arab Emirates’ Minister of Energy and Infrastructure Suhail Mohamed Mazrouei:

  • efforts by OPEC+ oil producers to boost output are “not encouraging”
  • noted the group was currently 2.6 million barrels per day short of its target

Sees higher oil prices in the pipeline due to the supply constraints and, on the demand side:

  • “The risk is when China is back”

Mazrouei was speaking at an energy conference. He wasn’t doing this but he is on the inside:

cartwheel joy

US major indices all close lower. S&P index closes down around -1%

The major US indices are all closing lower on the day. The declines are led by the S&P index which is closing down over 1%. The Dow industrial average is down around -0.8%.

Intel is the worst performer in the Dow after a report that they may miss on 2Q earnings. Intel shares a down -5.3% on the day

Although lower, the major indices are remaining in a sideways pattern that started on May 27. All 3 major indices are also still above their 200 hour moving averages keeping a modest bullish bias in the short-term. The final numbers are showing:

  • Dow industrials Average fell -269.24 points or -0.81% at 32910.91
  • S&P Index fell -44.89 points or -1.08% at 4115.78
  • Nasdaq index fell -88.95 points or -0.73% at 12086.28
  • Russell 2000 index fell -28.55 points or -1.49% at 1891.00

The 200 hour moving averages for the major indices are currently at

  • Dow industrial average 32520.90
  • S&P index 4062.85
  • NASDAQ index 11913.46

Moving back below those moving averages would tilt the bias back toward the negative/bearish side. Stay above and the shorter-term bias remains in the direction of the buyers

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