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

  
  Analysis

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)

  
  Analysis

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%

  
Analysis, US Market

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

IMF’s Gopinath:It will be challenging to bring inflation back to Fed target w/o turbulence

  
  Analysis

IMFThe IMF’s Gita Gopinath is weighing in on the US economy and  inflation  saying:

  • it will be challenging to bring inflation back to Federal Reserve target without turbulence
  • The relevant question is not whether inflation peaked, but whether it will stay significantly above the Fed’s target for a long time
  • Based on current projections, US inflation could stay above Fed’s target for a long time, there is risk of inflation expectations that the anchoring
  • There is a narrow path for US rates not to go up by much, but risk is the possibility of much a steeper rate increases

Not great news from IMF’s Gopinath on US inflation going forward

European major indices close lower on the day

  
Analysis, Global Indices
  • German DAX, -110.61 points or -0.76% at 14446
  • France’s CAC -51.72 points or -0.8% at 6448.84
  • UK’s FTSE 100 -5.93 points or -0.08% at 7593.01
  • Spain’s Ibex unchanged at 8842.71
  • Italy’s FTSE MIB -133 points or -0.55% at 24233

Looking around other markets as London/European traders look to exit shows:

  • Spot gold is trading up $5.68 or 0.31% at $1857.60.
  • Spot silver is down 5.5 cents or -0.25% at $22.19
  • WTI crude oil futures are higher despite a surprise build at the weekly inventory data. Crude oil is trading at $21.50. That’s up $2.10 on the day
  • Natural gas traded to a new cycle high at $9.65 today. It is currently trading at $9.58 up $0.25 or 2.68%. That is still not good news for inflation
  • The price bitcoin trades at $30,473 – near the middle of the days trading range. The low for the day came in at $29,831 while the high for the day was at $31,310.

US weekly crude oil inventories +2025K vs -1917K expected

  
Analysis, Crude
  • Prior was -5068K
  • Gasoline -812K vs +1075K expected
  • Distillates +2592K vs +1060K expected
  • Cushing -1593K vs +256K prior

API data released late yesterday:

  • Crude +1845K
  • Gasoline +1821K
  • Distillates vs +3376K
  • Cushing vs -1839K

There is a bit of evidence of some loosening in the crude market here but it’s one week of data. Gasoline remains extremely tight with inventories 10% below the long-term average.

Eurozone Q1 final GDP +0.6% vs +0.3% q/q second estimate

  
Analysis, Economy
  • GDP +5.4% vs +5.1% y/y second estimate

The upwards revision may look positive at first glance but the details are less rosy. The better-than-estimated growth in Q1 was largely driven by a rise in exports (+0.4%) and stocks (+0.6%), offsetting the drop in government expenditure (-0.1%) and household consumption (-0.3%). The material impact from the Russia-Ukraine conflict is more likely to be felt in Q2, so just be wary of that.

Coming up on Wednesday, 8 June 2022 – The OECD will publish its latest Economic Outlook

  
Analysis, Economy

The report will be published during Europe/US time today. I don’t have an exact time.

The OECD bill it as:

  • The OECD will publish its latest Economic Outlook, containing analysis and projections for the world economy, OECD member countries, G20 countries and key partners

What they really mean is they’ll be sounding the alarm bells, again, on inflation rocketing higher right around the globe. And keeping interest rate hikes ahead on the radar. The European Central Bank meet Thursday. Most analysts expect a bit of a placeholder meeting ahead of aggressive hikes beginning in July. Ee’ll see.

US Treas Sec Yellen told senators that she expected inflation to remain high

  
  Analysis

U.S. Treasury Secretary Janet Yellen was speaking during a Senate Finance Committee hearing. Yellen told the Senators:

  • the United States was dealing with “unacceptable levels of inflation,”
  • “I do expect inflation to remain high although I very much hope that it will be coming down now,”

Reuters carry the report, adding:

  • ellen repeatedly rejected Republican assertions that inflation was being fueled by Biden’s $1.9 trillion American Rescue Plan (ARP) COVID-19 spending legislation last year.
  • “We’re seeing high inflation in almost all of the developed countries around the world. And they have very different fiscal policies,” Yellen said. “So it can’t be the case that the bulk of the inflation that we’re experiencing reflects the impact of the ARP.”
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