Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

A 100bp Hike?

By Swissquote Ltd (Ipek Ozkardeskaya)Market OverviewJul 14, 2022 07:17
uk.investing.com/analysis/a-100bp-hike-200526792
A 100bp Hike?
By Swissquote Ltd (Ipek Ozkardeskaya)   |  Jul 14, 2022 07:17
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The US inflation report was ugly. Inflation in the US advanced to 9.1% in June, from 8.6% a month earlier, and there was nothing toppish about yesterday’s inflation report, apart from the fact that gasoline prices which soared 60% since last year was the main responsible for the further advance in inflation, and gasoline prices have been trending lower since a couple of weeks now.  

Due today, the producer price index is expected to stabilize a touch below the 11% mark.  

A CPI figure above the 9% psychological level boosts the idea that the Federal Reserve (Fed) won’t hesitate to continue its aggressive rate increases to abate inflation. Pricing on Fed funds futures now gives more than 80% chance for a 100bp hike at the next FOMC meeting, due by the end of this month. That results in a stronger dollar, higher yields and a further selloff in equities.  

More importantly, there is little between now and the Fed decision to reverse the pricing. 

Post-CPI 

The US dollar index consolidates above the 108 mark, and the bulls have their eyes set at the 110 level.  

The 10-year yield remains a touch below the 3% mark, but the 2-year yield continues pushing higher, pushing the 2-10-year portion of the yield curve to a deeper inverted territory.  

Gold dived to $1707 per ounce yesterday, not because the market doesn’t buy the inflation rhetoric as claims Cathie Wood, but the rising US yields continue weighing on the precious metal, even when the risk sentiment is off.  

And crude oil tipped a toe below the 200-DMA, near $93pb. The tighter monetary policies, the recession talks and prospects of slower demand should keep the bears in charge of the market. 

Elsewhere… 

The Bank of Canada raised its rate by 100bo yesterday, sending the Canadian stocks lower, and the loonie just a little bit higher against the US dollar. But the US dollar remains so strong, that no currency defies its strength.  

The data released in Europe was quite mixed. The British GDP grew 3.5%, as both the industrial and manufacturing production surprised to the upside in May. The better-than-expected economic data gave a small boost to Cable at yesterday’s session, but Cable remains under the growing pressure of a stronger US dollar, and will hardly fight back the 1.20 offers. 

In the eurozone, the inflation figures were mixed. The German inflation stabilized at 7.6% as expected in June, that was slightly lower than the 7.9% printed a month earlier. The French inflation rose less than expected, advancing from 5.2% to 5.8%, instead of 6.5% expected by analysts. Spanish inflation confirmed a read above 10% in June.  

But there was one good news: industrial production in Europe somehow rebounded in May, to 1.6%, versus -2.5% printed a month earlier. I doubt that it would help keeping the EUR/USD above parity.  

There is a solid support near the 1.00 level, and stops below that level. If the 1.00 support is broken, we could rapidly see the EUR/USD slip lower on stops.  

Earnings 

JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) will go to the earnings confessional today, BlackRock (NYSE:BLK), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are due to release their earnings tomorrow.  

The higher interest rates may have increased the banks’ interest margins, but inflation certainly ate a part of that margin. Plus, lower trading volumes and slower loan activity due to the recession fears may have weighed on 2Q earnings.  

A 100bp Hike?
 

Related Articles

A 100bp Hike?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email