Futures Jump As Traders Scale Back Fed Hike Expectations As Economy Slumps

US equity futures and global markets stormed higher, as the dollar extended its slide from a record high as investors scaled back bets on how aggressively the Federal Reserve will tighten policy in response to growing recession fears which Bloomberg paradoxocially interpreted as “easing recession fears.” In other words, rising risk of a recession lowers the risk of a Fed-induced recession. Lovely.

In any case, Nasdaq 100 futures rose 1.2% and contracts on the S&P 500 added 1%, with spoos trading back over 3,900 and more than 5% above June’s closing low following Friday’s strong rally on renewed hopes that the Fed will end its rate hikes and soon start cutting rates as well as end QT. West Texas Intermediate crude oil also stormed higher, undoing all recent losses and traded near $100 a barrel while the Bloomberg Dollar Spot Index slipped 0.5%, extending a retreat from a record high. The benchmark Treasury yield rose back toward 3%.

As Q2 earnings season rolls out, Goldman Sachs shares surged as much as 4% in premarket trading after the  bank reported second-quarter results that were better than expected in nearly every area. Bank of America Corp.’s results were more mixed. Here are some other notable premarket movers:

Lilium (LILM US) shares rise as much as 10% in US premarket trading on Monday after Bristow (VTOL US) secured the option to purchase 50 Lilium Jets in addition to providing maintenance services for the aircraft’s launch network in Florida, and other future U.S and European markets.
ITHAX Acquisition (ITHX US) shares rise 32% in US premarket trading, extending gains after its holders approved the previously proposed business combination with Mondee at the EGM held on July 15, 2022.
Cryptocurrency-exposed stocks are gaining in premarket trading after Bitcoin rose as much as 7.3% to trade above $22,000 for the first time in more than a month. Marathon Digital (MARA US) +8.8%, MicroStrategy (MSTR US) +5.1%, Coinbase (COIN US) +6.2%, Riot Blockchain (RIOT US) +7.3%, Ebang (EBON US) +2.3%
Watch JPMorgan (JPM US) shares as Berenberg raises recommendation to hold, saying the investment bank’s shares are trading at a 20% discount to their long-run average and given the temporary nature of headwinds, downside risks to the stock “are now more limited.”

Policy makers pushed back against even bigger hikes in interest rates and fresh data showed a greater decline in US consumers’ long-term inflation expectations. That boosted odds for a 75 basis points July Fed rate hike, squashing talk of a 100 basis-point move after last week flirting with the prospect of a 100 basis-points move after data showed no let-up in stubbornly high price pressures. Yet the bullish market reaction prompted some such as Goldman to ask if the worst is now behind us.

Still, the outlook remains troubling for many investors. Gains in stock markets may prove to be short-lived as inflation pressures remain high and a recession seems increasingly likely, according to strategists at Morgan Stanley and Goldman Sachs Group Inc.

“Risk-reward at these levels has certainly improved but because we have not yet fully priced in a recession, it’s hard to say that the markets are screaming cheap,” said Anastasia Amoroso, the chief investment strategist at iCapital.

In Europe, stocks surged to the highest level in more than a month, with the Stoxx 50 jumping 1.3%, and with FTSE MIB outperforming peers, adding 1.4%, while IBEX lags, adding 0.6%. Miners, energy and banks are the strongest-performing Stoxx 600 sectors. Energy and basic resources sectors lead gains in the Stoxx 600 as oil rises after Saudi Arabia refrained from pledges to increase crude supplies, while metals rebound amid reports of China’s steps to help developers. Shell rose as much as 3.8%, TotalEnergies +2.7%, BP +3.7%, Rio Tinto +4.3%, Antofagasta +5.1%, KGHM +6.4%. Here are some of the other notable European movers today:

GTT jumps as much as 7.5% as Societe Generale raises its price target on the LNG containment systems firm and reiterates a buy rating, as it sees the firm on the brink of its “strongest and longest period of growth” ever.
Solvay rises as much as 5.3% after reporting preliminary results. Citi said the chemicals company reported a solid beat, driven by both volumes and prices contribution from all three segments.
Luxury stocks including Cartier owner Richemont and UK trench-coat maker Burberry rebound after declines on Friday, with Deutsche Bank noting that there’s no underlying slowdown in consumer demand for luxury. Richemont shares rise as much as 5%, Burberry +3.8%, LVMH +1.7%
BASF gains as much as 4.2% as Bank of America double upgrades the stock to buy from underperform, arguing that the market is overlooking the partial hedge of its oil & gas assets in Wintershall.
Nel jumps as much as 16% after the electrolyzer firm announced a 200MW alkaline electrolyzer equipment order. Citi says the order is likely to be taken well by the market as it supports Nel’s medium-term growth outlook and is a positive sign for the trajectory of industry demand.
Direct Line falls as much as 15% following profit guidance that was “even worse” than feared amid cost inflation, according to Jefferies, which had cut the stock to hold from buy prior to the statement Monday.
Verbund declines as much as 7.8% after Austrian government officials suggested they’re considering a partial cap on household power bills.

Asian stocks climbed as investors dial back expectations of aggressive tightening by the Federal Reserve while weighing China’s policy support for the ailing property sector. The MSCI Asia Pacific Index rose as much as 1.4% Monday, poised for the first gain in three days, led by financial and technology shares. Hong Kong and South Korean equities were among the top gainers in the region, while the Japanese market was closed for a holiday. Chinese shares gained after central bank Governor Yi Gang said the monetary authority will step up efforts to provide stronger economic support amid the pandemic and external headwinds. Regulators also urged banks to support developers to help stabilize the real estate market, according to another report. Asian markets took a breather as comments from two Fed officials, as well as a drop in US consumers’ long-term inflation expectations, eased fears about a super-sized interest rate hike this month. Still, ongoing Covid outbreaks in China and woes in the nation’s property sector are clouding the region’s outlook. The Asian stock benchmark is hovering near a two-year low. The Chinese central bank “doesn’t want the economy to overheat in the short term” but more policy initiatives are needed, Vikas Pershad, a fund manager at M&G Investments, said in a Bloomberg TV interview. “The slowdown in the property market is not just a small subset of mortgage payments being held back. It’s the ripple effects that go throughout the economy. And that carries through many different sectors.”

Australia’s S&P/ASX 200 index rose 1.2% to close at 6,687.10, boosted by gains across miners, banks and energy shares.  A group of materials stocks rebounded as iron ore shook off losses. Whitehaven’s earnings outlook also drove optimism against the backdrop of a tightening market.  In New Zealand, the S&P/NZX 50 index rose 0.4% to 11,163.63.

In FX, the Bloomberg Dollar Spot Index fell as much as 0.5%, underperforming other Group-of-10 peers; JPY and NZD are the weakest performers in G-10 FX, while GBP and SEK outperform. MXN (+0.9%) and LB (+0.8%) lead gains in EMFX. The British pound led gains.The euro rose to the highest level in a week against the dollar. The weekly fear-greed indicator hit the most bearish levels since the Greek crisis in early 2015 on Friday. The New Zealand dollar rose as much as 0.6% to $0.6201 before paring the move, after inflation accelerated more than expected in the second quarter to a fresh 32-year high, fueling bets on further aggressive tightening by the central bank,

In rates, Treasuries fell across the curve along with German bonds. US yields were cheaper by 2.5bp to 4bp across a slightly steeper curve with 2s10s, 5s30s spreads wider by 1bp and 0.5bp on the day; 10-year yields around 2.96%, cheaper by 4bp on the day while bunds underperform by additional 4bp. Italian benchmark 10-year yields surged as much as 12 basis points to 3.39%, with little sign of reconciliation among Italy’s governing coalition over the weekend. The spread between Italian and German 10-year yields rose to 223 basis points, the widest in a month, before retracing some of the move. Peripheral spreads are mixed to Germany; Italy tightens, Spain widens and Portugal widens.

Commodities were broadly stronger after Joe Biden’s trip to the Middle East ended being a total dud and without a firm commitment from Saudi Arabia to boost crude supplies. Wheat climbed after a five-day slump and copper rallied. Crude futures advanced. as WTI drifts 1.9% higher to trade near $99.49. Brent rises 2.2% near $103.34. Most base metals trade in the green; LME nickel rises 3.3%, outperforming peers. Spot gold rises roughly $13 to trade near $1,721/oz. Spot silver gains 1.2% near $19.

US nat gas futures extended gains above the $7 level as scorching temperatures across the country boost air-conditioning demand. A heat wave in the UK and France pushed up European natural gas prices, exacerbating the region’s worst energy crunch in decades.

Separately, traders are also closely watching whether the Nord Stream pipeline from Russia will fully return to service later this week, when it ends scheduled maintenance. Moscow has already curbed supplies to the continent amid tensions related to its invasion of Ukraine: “The possibility that Russia stops, or severely reduces, their gas exports to Europe should keep markets on edge in the near-term,” Mizuho International Plc strategists Peter McCallum and Evelyne Gomez-Liechti wrote in a note to clients.

Bitcoin is bid and lifting above the $22k mark after rising above the $20K support that it has been pivoting, generally speaking, recently.

It’s a quiet start to an otherwise very busy week (with both the ECB and BOJ on deck), and we only get the NAHB Housing Market Index and the May TIC data later today. We also conclude bank earnings with BofA and Goldman reporting results premarket.

Market Snapshot

S&P 500 futures up 1.1% to 3,907.00
STOXX Europe 600 up 1.4% to 419.76
MXAP up 1.4% to 156.28
MXAPJ up 1.8% to 516.33
Nikkei up 0.5% to 26,788.47
Topix little changed at 1,892.50
Hang Seng Index up 2.7% to 20,846.18
Shanghai Composite up 1.6% to 3,278.10
Sensex up 1.1% to 54,359.13
Australia S&P/ASX 200 up 1.2% to 6,687.14
Kospi up 1.9% to 2,375.25
German 10Y yield little changed at 1.17%
Euro up 0.5% to $1.0134
Gold spot up 0.7% to $1,719.39
US Dollar Index down 0.52% to 107.50

Top Overnight News from Bloomberg

After drawing foreign capital into China’s markets for years, President Xi Jinping is now facing the risk of a nasty period of financial de-globalization. Investors point to one main reason why: Xi’s own policies
China may allow homeowners to temporarily halt mortgage payments on stalled property projects without incurring penalties, people familiar with the matter said, as authorities race to prevent a crisis of confidence in the housing market from upending the world’s second-largest economy.
Prime Minister Mario Draghi is under mounting pressure to reverse his pledge to resign as soon as this week and avoid throwing Italy into chaos as economic warning signs are building
Russian Defense Minister Sergei Shoigu ordered part of his forces to focus on destroying Ukraine’s long-range missile and artillery systems during a visit to troops in occupied territory

A more detailed look at global markets courtesy of Newsquawk

APAC stocks gained with risk appetite spurred after last Friday’s firm gains on Wall St. and renewed China support pledges helped markets shrug off China’s COVID woes. ASX 200 was underpinned amid M&A activity and with Australia reinstating quarantined-support payments. Nikkei 225 was closed as Japan observed the Marine Day holiday. Hang Seng and Shanghai Comp. outperformed regional counterparts after PBoC Governor Yi pledged to increase the implementation of prudent monetary policy to provide stronger support for the real economy and with the property sector underpinned after the CBIRC asked lenders to provide credit to eligible developers so they can complete unfinished residential properties.

Top Asian News

China reported 580 local cases on Saturday which was the highest since May 23rd. It was also reported that Shanghai said that the situation in the city remained severe. It was also reported that Shanghai is planning to conduct district-wide testing in 9 COVID-impacted districts and other smaller scope areas from Wednesday-Friday, while China’s Tianjin is also planning massive COVID tests, according to Bloomberg and Reuters.
China is considering a mortgage grace period for home projects that have stalled, according to Bloomberg sources.
Macau will extend its lockdown of businesses and casino closures to July 22nd, according to Reuters; subsequently, a health officials said some social activites could resume in the next week if cases drop.
Beijing government official says no cases have been found so far in COVID tests of nearby neighborhoods, according to a media briefing.
Chinese cyberspace regulator is to launch a two-month clean-up campaign which will focus on minors use of livestreaming, games and e-commerce platforms, according to State meida.
US State Department approved a possible USD 108mln military sale to Taiwan, according to Reuters.
Japanese daily COVID infection cases surpassed 110k on Saturday which was a record high, according to Jiji news agency.
Japanese Finance Minister Suzuki reiterated sharp volatility is seen in the FX market and that they must watch moves with a strong sense of urgency, while he also noted that G20 affirmed their agreement on FX and that many countries including Japan, strongly condemned Russia’s invasion of Ukraine, according to Reuters.
South Korean Finance Minister Choo said they are to exempt taxes on income from Korean treasury bonds to attract foreign investment, according to Reuters.

European bourses are firmer across the board in a continuation of and extension on the overnight risk tone, Euro Stoxx 50 +1.4%. Sectors are firmer across the board with the upside spearheaded by Basic Resources, Energy, and Banks – due to price action in underlying commodity prices, alongside yields. US futures are similarly bid, as we await further earnings with key names including Goldman Sachs on the docket. Delta (DAL) to buy 100 737 Max 10 Boeing (BA) craft, option for 30 additional craft. US chip firms are said to be mulling whether to oppose the CHIPS Act as it may disproportionately benefit Intel (INTC), according to Reuters sources

Top European News

UK PM Johnson’s allies are stepping up their attacks against former Chancellor Sunak and accused him of going soft on Northern Ireland’s post-Brexit trade regime, according to FT.
UK Foreign Secretary Truss signalled she would tighten ministerial scrutiny of the BoE if she becomes the next PM and accused the Bank of failing to tackle inflation, according to FT.
A poll by JL Partners of more than 4,400 people found that 48% that backed the Tories in 2019 considered former Chancellor Sunak would be a good PM, while 39% thought the same of Foreign Secretary Truss and 33% thought the same of Trade Secretary Mordaunt, according to The Telegraph.
ConservativeHome survey suggested Trade Secretary Mordaunt would lose in a head-to-head against former Chancellor Sunak (41% vs 43%) and against Foreign Secretary Truss (41% vs 48%), according to The Telegraph.
UK Foreign Secretary Truss confirms she will not be attending Tuesday’s (July 19th) Sky News leadership debate, via Huffington Post’s Schofield; additionally, reports that former-Chancellor Sunak is pulling out of the debate.
Italy’s League and Forza Italia parties said they can no longer govern with the 5-Star Movement which brings the government closer to collapsing ahead of a potential confidence vote on Wednesday, according to Politico.
European Investment Bank said it will reduce road and infrastructure funding in line with its climate objectives, according to FT.

Central Banks

Fed officials signalled they are likely to increase rates by 75bps at the July meeting and noted that although policymakers left the door open for a 100bps increase, some have simultaneously poured cold water on the idea in recent interviews and comments, according to WSJ.
RBNZ announced a new standing repurchase facility which will permit eligible counterparties to lend NZD through the standing repurchase facility from July 20th and will be remunerated at the OCR -15bps, while the RBNZ will deliver to counterparty nominal New Zealand government bonds as collateral in exchange for depositing NZD, according to Reuters.
PBoC Governor Yi said China’s economy faces downward pressure due to COVID and external shocks, while he added that the central bank will increase the implementation of prudent monetary policy to provide stronger support for the real economy, according to a PBoC statement cited by Reuters.
HKMA said they need to regulate decentralised finance platforms sooner rather than later, while RBA Governor Lowe commented that it is likely better for retail digital currency tokens to be issued by regulated private sector companies than central banks, according to Reuters.
SNB intends to increase rates by at least 50bp (from the current -0.25%) at the September gathering, in the scenaro of further inflation upside a 75bp move could occur, according to sources via Schweiz am Wochenende.
BoE’s Saunders says he will not announce today how he will vote at the August meeting; believes that the tightening cycle has “some way to go”, the cost of not tightening promptly enough would be relatively high at present.
Czech central bank’s Dedek said it is appropriate today to use FX intervention to prevent the crown from weakening and the aim is not to strengthen the currency, while he added that they are far from the point they would start to feel reserves are getting dangerously low, according to Lidove Noviny.

FX

Sterling takes advantage of Buck’s demise even before hawkish commentary from BoE’s Saunders, Cable closer to 1.2000 than 1.1850, DXY nearer 107.000 than 108.00.
Aussie underpinned by rebound in iron ore ahead of RBA minutes, AUD/USD approaching 0.6850 from sub-0.6800 overnight low.
Euro probes 1.0150 vs Greenback ahead of Thursday’s ECB meeting and expected 25 bp hike.
Loonie supported by recovery in WTI and BoC Governor Macklem flagging Canadian CPI on 8% handle next week, USD/CAD below 1.3000.
Kiwi capped after stronger than forecast NZ inflation data as RBNZ announces standing repo for loans 15 bp below OCR to start on July 20th, NZD/USD hovering under 0.6200 and AUD/NZD cross above 1.1050.
Franc lags irrespective of reporting suggesting SNB to hike at least half point again in September as weekly Swiss sight deposits at domestic bank increase, USD/CHF pivots 0.9750.
Lira lurches further in wake of Turkish budget balance turning from surplus to deficit, USD/TRY testing 17.5000 offers and semi-psychological resistance.

Commodities

WTI and Brent have been moving higher with the broader risk tone and after the Biden-Saudi meeting with attention, for the complex, looking to the next OPEC+ gathering.
Saudi Arabia’s Crown Prince MBS said adopting unrealistic policies toward energy sources will lead to inflation and he called on Iran to cooperate with the region, according to Reuters. Saudi’s Crown Prince also said that they have an immediate capacity to increase production to 12mln bpd and with investments, production can go to 13mln bpd after which the kingdom will not have any additional capacity to increase production.
Saudi Foreign Minister said that they listen to their partners and friends across the world especially consumer countries but added that at the end of the day, OPEC+ follows the market situation and will supply energy as needed, according to Bloomberg.
US senior envoy for energy security Hochstein said he expects gas prices to decline further towards USD 4/gallon and is confident there will be a few more steps in the coming weeks from OPEC in terms of oil supply, according to Reuters.
Energy Intel’s Bakr stated that we are in a situation where capacity is limited which is why the UAE and Saudi Arabia want to remain cautious about how and when it is used.
Top German energy regulator said natgas inventories are nearly 65% full but not enough to get through the winter without Russian gas, according to Bild am Sonntag.
Libya’s Oil Minister said Libya has resumed oil exports, according to Al Jazeera. It was also reported that the NOC said its board will not cooperate with any illegal dismissal decisions made by an outgoing administration.
South Africa’s largest fuel producer Sasol declared a force majeure on the supply of petroleum products due to delays in deliveries of crude to the Natref refinery, while the outage means all refineries in the country are shut, according to Bloomberg.
Iran set August Iranian light crude price to Asia at Oman/Dubai + USD 8.90/bbl, according to Reuters sources.
Spot gold is bid as the USD pulls-bacl but is yet to breach USD 1725/oz in relatively limited European newsflow. Base metals bid after strong overnight performance.

US Event Calendar

10:00: July NAHB Housing Market Index, est. 65, prior 67
16:00: May Total Net TIC Flows, prior $1.3b

DB’s Jim Reid concludes the overnight wrap

It could be a record week here in the UK with temperatures possibly hitting 40 degrees for the first time ever today or tomorrow! While the warm weather has been pleasant of late, I can’t wait until Wednesday when it cools down a bit. The coolest I was this weekend was going to a cinema on Saturday night with aircon to see Top Gun Maverick. However that was an incredibly stressful film. I’m not really a fan of action movies but that was edge of the seat stuff and very well done. Looking forward to the third part of the trilogy in 2058.

Back to 2022, and with the Fed now on their FOMC blackout period and a lighter US week for data (ex-housing), Q2 US earnings and all things European will be at the forefront of market attention this week with the highlight being the ECB’s likely first rate hike since 2011 on Thursday. Gas flows from Russia after maintenance on the Nord Stream pipeline ends the same day will also be a big focus with the EU expected to detail energy contingency plans the day before. We’ll also get a decision from the BoJ on Thursday too. Global preliminary July PMIs for the US, Japan and key European economies will come out on Friday.

Going through some of these themes in more detail now. The ECB meeting on Thursday will likely deliver a +25bps hike, the first rate increase since 2011. Our European economists preview the upcoming meeting here. Their updated call retains the 2% terminal rate forecast but the hiking cycle is expected to be split. The first phase has hikes of +25bp, +50bp, +50bp and +25bp in July, September, October and December. By end-2022, the deposit rate will be 1%, helping to balance inflation and growth risks before the anticipated recession forces a pause. The second phase in H1 2024 is now expected to have four +25bp hikes and push rates into moderately above neutral territory. The ECB’s decision comes as Europe is grappling with significant concerns about the energy supply, a euro that has reached parity against the dollar for the first time since 2002, and inflation at an all-time high of 8.6%. If that’s not enough, it also comes alongside a recent widening in peripheral sovereign bond spreads and an Italian government possibly on the brink of collapse. We should know more on Wednesday when Draghi addresses lawmakers in Rome, however things are escalating quickly. The Five Star Movement (the second largest in the coalition) effectively abstained in a confidence motion in the Senate, triggering the current crisis. This weekend the party have met and don’t seem to be dialling down the rhetoric with leader Conte blaming Draghi for the impasse. Meanwhile the centre-right block are saying the coalition pact has been broken and that they won’t now rule in a coalition with Five Star. Probabilities of a snap election are certainly going up.

With this unfolding, the details of the anti-fragmentation tool will be highly sought after at the ECB meeting and our economics team reviews the key features of the new tool – size, target, conditionality and sterilisation method – in the same preview note mentioned above. The ECB will also release its Euro area bank lending survey tomorrow and the Survey of Professional Forecasters on Friday.

Another event that will keep investors on edge that day is the end of the Nord Stream pipeline’s scheduled maintenance period. Fears that Russia will keep the taps closed have roiled markets in recent weeks and the EU is expected to detail contingency plans on Wednesday. Although the NS1 maintenance period ends on Thursday, it’s possible that there will be ambiguity on supply for a while. Whatever Russia’s plans for supply through the autumn and winter, we may not fully see it in the next few days and weeks. Part of that might be politics and part of it may be operational as the turbine repair may take a while to be fully integrated, or at least that could be the claim. So we may get a few clues from Friday but it is unlikely we’ll know all the answers. See my one-sided devil’s advocate view in Thursday’s CoTD here on why it’s not in Putin’s interest to completely cut off the supply of gas.

Also on Thursday, the next policy decision from the BoJ will be due. Our chief Japan economist previews the meeting here. While he expects no change in the current monetary stance and forward guidance on policy rates, the BoJ’s Outlook Report is expected to show a downgrade in its growth forecast for FY2022 and an increase in its inflation forecast. The national CPI print will be due the next day and our economist expects core inflation (ex. fresh food) to climb to 2.2% YoY (+2.1% in May) and core-core inflation (ex. fresh food and energy) to 0.9% (+0.8% in May). Small fry in a western context but relatively strong for Japan.

Back to the data and US housing market indicators will be in focus this week, after the June CPI report showed the fastest monthly gains since 1986 for primary rents and 1990 for owners’ equivalent rent. In terms of data, we have July’s NAHB Housing Market Index (today), followed by June housing starts, building permits (tomorrow) and existing home sales (Wednesday).

In European data, the UK will be in focus with June CPI, RPI, PPI and May’s house price index due on Wednesday, preceded by labour market data tomorrow. Also released tomorrow will be July’s consumer confidence for the Eurozone, followed by a similar gauge and June retail sales for the UK on Friday.

In terms of earnings, after key US banks started reporting last week, we will get more insight into the state of the economy and consumer spending from Goldman Sachs, Bank of America (today) and American Express (Friday). Amid a mixed-bag performance for commodities in recent weeks, results from Halliburton (tomorrow), Baker Hughes (Wednesday), Schlumberger and NextEra (Friday) will be in focus. Earnings of consumer-oriented companies will be highly anticipated as well, including Johnson & Johnson (tomorrow), United Airlines, Tesla (Wednesday) and American Airlines (Thursday). In tech, key reporting corporates will include IBM (today), Netflix (tomorrow), ASML (Wednesday), SAP (Thursday) and Twitter (Friday). Other corporate earnings reports will feature Lockheed Martin (tomorrow), AT&T, Blackstone (Thursday) and Verizon (Friday).

Asian equity markets are higher at start of the week after gains on Wall Street on Friday. As I type, the Hang Seng (+2.45%) is leading the way followed by the Kospi (+1.80%), Shanghai Composite (+1.49%) and the CSI (+1.00%). Elsewhere, markets in Japan are closed today for the Marine Day Holiday. Outside of Asia, stock futures in the DMs are pointing to additional gains with contracts on the S&P 500 (+0.43%), NASDAQ 100 (+0.75%) and DAX (+0.37%) all climbing.

Early morning data showed that New Zealand’s consumer price index (+7.3% y/y) climbed to a 32-year high in the June 2022 quarter (v/s +7.1% expected) and speeding up from a +6.9% gain in the first quarter, mainly due to rising prices for construction and rentals for housing.

Looking back on another wild week in markets now. The highlight was inflation. The US CPI report came out on Wednesday, where headline yoy inflation bumped up to 9.1%, its highest since 1981. Indeed, each of the headline/core/MoM/YoY measures surpassed expectations. The following day showed producers were also feeling the heat, with final demand PPI measures beating expectations, with the crucial health care component portending an increase in upcoming PCE prints, the Fed’s preferred inflation measure.

The prints drove speculation the Fed would deliver a super-charged 100bp hike at the July meeting, but Fed officials threw water on that pricing at the end of the week, signaling a preference for a second consecutive 75bp hike. Nevertheless, the yield curve moved to its most inverted of the cycle, ending the week at -21.3bps, as expected Fed tightening was brought forward, and the resulting landing was expected to get that much harder. All told, 2yr yields increased +1.5bps (-1.2bps Friday) and 10yr yields fell -16.5bps (-4.4bps Friday). While stocks experienced a bump on the easier policy expectations (75 not 100) from Fed speakers at the end of the week, the S&P 500 climbing +1.92% Friday, the index fell the other four days and ended the week -0.93% lower. Tech underperformed with the NASDAQ falling -1.57%, staging a +1.79% recovery of its own on Friday.

US earnings season kicked off, with major US financials disappointing, as major money center banks signaled they would likely need to optimise their balance sheets to increase capital ratios over the near-term. A realisation that had JPMorgan temporarily suspending share buybacks.

Along with their own inflationary worries, Europe is also facing down political and energy crises. The attempted resignation of Prime Minister Draghi, and subsequent rejection by President Mattarella, injected yet more turmoil into European asset pricing. 10yr BTPs widened 19.4bps versus bunds (+6.5bps Friday), to 212bps, their widest levels since the ECB has floated a new anti-fragmentation tool. Heading into this week’s ECB meeting, pricing currently is at +29.0bps, a smidge higher than the week prior, so some chance the ECB will kick off the hiking cycle with a 50bp hike. 10yr bunds were 21.2bps lower (-4.5bps Friday), giving swirling risk on the continent. Speaking of European natural gas, prices managed to fall -8.23% (-8.84% Friday) following news that Canada would deliver the necessary turbine to restore gas flows from Russia back to the continent, but prices traded in a more than 20% range over the week, showing the anxiety that still dominates the situation. Elsewhere, brent crude fell below $100/bbl intraweek for the first time since mid-April, ultimately falling -5.50% on the week (+2.08% Friday) to $101.16/bbl as global growth fears grip markets.