EUROPE - Five Things You Should Know Before You Begin Your Day
Europe's hard recovery is accompanied by sanctions against Russia, rate increases by central banks, and a contest for prime minister in the UK. Here is the topic of conversation.
According to preliminary predictions by the European Commission, the pandemic's recovery in the euro area will be less robust than anticipated, while inflation will rise more quickly as a result of Russia's conflict in Ukraine. In contrast to projections made in May, the gross domestic product is anticipated to grow by 2.6 percent this year and 1.4 percent in 2023. The European Central Bank's aim for inflation, which is already at a record high of more than 4 times that level, is now projected to rise to 7.6 percent in 2022 and 4 percent the following year. The ECB's work, which is only now beginning with a first interest-rate increase in more than a decade, is made more difficult by the possibility that a recession in Europe is unavoidable.
Cleaning Up Mess
Central banks are accelerating interest rate increases in an effort to stem an inflationary rise that is partially their own doing. Singapore's central bank unexpectedly tightened monetary policy, Canada raised rates by a whole percentage point more than anticipated, South Korea raised rates by a half point after numerous quarter-point increases, and the Fed may consider a historic 100 basis-point boost this month. It's a speed that nobody anticipated only a few months ago, and it'll probably cause a growth shock that raises the possibility of recessions.
British talent show
After Rishi Sunak, a former chancellor, and Penny Mordaunt, the minister of trade, emerged as the front-runners in the first round of voting, the UK Conservative Party will hold another vote on Thursday to choose a new leader and the country's next prime minister. After the vote by Tory MPs, which is expected to be announced in London around 3 p.m., at least one of the six remaining candidates will be eliminated. The field size might be even less as any challenger who receives fewer than 30 votes will also be disqualified.
According to Sabine Weyand, director general for trade at the European Commission, the European Union and the US are cooperating to jointly execute their economic sanctions on Russia. In order to turn their work into actual projects, US and EU officials intend to hold the US-EU Trade and Technology Council's third meeting in the upcoming months. In the meantime, the EU stated in its new guidelines that member states must also make sure that items subject to sanctions that have been brought illegally into any region of Russia cannot be transferred elsewhere through EU customs territory.
As investors considered a sizzling US inflation report, Asian equities traded neutral while European shares are expected to edge higher. JPMorgan and Morgan Stanley are the first Wall Street banks to report second-quarter earnings. Additional companies that will disclose earnings or sales figures include Ericsson, SEB, EQT, and Experian. Speaking at a parliamentary session in Lisbon is Mario Centeno from the ECB. Inflation numbers for Sweden and Ireland are anticipated. Golf's oldest major, the 150th Open Championship, gets underway in Scotland's St. Andrews.
Here is what Cormac is interested in this morning, to sum up.
Following Wednesday's blistering inflation data, markets anticipate some giving from the Fed, but they also anticipate some swift taking. Traders formerly predicted a 3-in-4 likelihood of a rate increase of one percentage point this month, with 75 basis points now completely off the table. However, investors have also factored in more rate cuts than three for the coming year, expecting the Fed to quickly adopt a more dovish attitude as the US economy struggles under the weight of aggressive hikes in 2022. Financial markets oscillated following the inflation beat, as is typical with shock economic data points, so it will likely be more instructive to wait for Thursday's price action to determine the genuine investor response.However, the narrative that the Fed is pushing the economy into a recession appears a little stronger this week, which predicts a lower ceiling for bond yields and difficulty for equities. It still leaves open the possibility of more dollar strength because the greenback will probably make up for any yield support lost by acting as a shelter.
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