It was FOMC monetary policy decision week once again, and it looks like we got a slightly different tone from Powell and company that sparked a move away from the U.S. dollar.
Notable News & Economic Updates:
Gazprom cuts Nord Stream 1 gas flows on Monday
China’s property sales are set to plunge 30% — worse than in 2008, S&P says
U.S. crude exports gain 21% to hit record high; likely a result of Europe’s move away from Russian oil – EIA
Fed raised interest rates by 75 bps to a range of 2.25% – 2.50%
South Korea’s manufacturing outlook came in at 80 for August vs. 82 in July, the lowest level since Jan. 2021
China Industrial Profits data for June: +0.8% y/y vs. -6.5% y/y in May – NBS
China’s Politburo event on Thursday signaled that more stimulus is not likely coming and that covid controls will likely remain
Biden begins fifth call with China’s Xi, looking to tamp down Taiwan tensions
Oil steadily rose back over $100/bbl this week as traders priced in lower odds of a production boost from OPEC+, likely to stay unchanged until September
U.S. Personal Consumption Expenditures price index hits highest level since January 1982 at 6.8% y/y in June
Intermarket Weekly Recap
The main event of the week was the latest monetary policy decision from the FOMC. And as usual, it looks like traders were mostly waiting on the sidelines in anticipation for a widely expected 75 bps interest rate hike.
This was characterized by relatively low volatility early this week across the broad financial markets. Probably the only significant move to speak on was oil‘s strength, likely influenced by news of Gazprom cuts Nord Stream 1 gas flows to Europe on Monday. This also was possibly the driver for early week euro weakness as rising energy costs will likely continue to weigh on the fragile European economy.
Price action started to get more lively with the Fed’s monetary policy statement on Wednesday, after the FOMC raised the Fed funds target range to 2.25% – 2.50% as widely expected.
But it wasn’t until Fed Chair Powell’s speech following the statement that really got traders moving, specifically after toning down expectations of more aggressive tightening ahead. He said that while large increases could be appropriate, the FOMC will be data dependent going forward.
This development is in line with growing sentiment that the aggressive stance that global central banks have taken to tame extreme high inflation conditions may be softening, especially as we continue to see broad economic updates still pointing to an economic slowdown ahead.
The most notable data point was likely the weaker-than-expected advanced U.S. GDP read on Thursday, coming in well below expectations at -0.9% for Q2 2022 and signaling a technical recession in the U.S.
This argument of slower growth likely to slow monetary policy tightening (or even reversing back to easing) is likely why we saw a move higher in risk assets, as well as a move lower in the U.S. dollar and bond yields (which also likely contributed to a rise in dollar denominated assets). This sentiment seems to have continued into the weekend, despite another record inflation read from the Federal Reserve’s preferred inflation metric, the Core PCE price index, hitting new highs.
Dallas Fed Manufacturing Survey declined by 5 points to -22.6 in July
U.S. consumer confidence dropped to its lowest level since Feb. 2021 as inflation bites
U.S. New home sales fell by 8.1% to 590K in June
U.S. Durable Goods Orders Rose 1.9% m/m in June vs. +0.8% m/m in May
US advance goods trade balance: -98B in June vs. -104B in May
U.S. pending home sales fell 20% y/y in June; -8.6% m/m; NAR forecasted that total sales will be down 13% for 2022
Fed Hikes by 75 basis points; Powell sees no U.S. recession now; may slow pace of rate hikes
U.S. advanced GDP read showed the economy contracted by -0.9% in Q2 2022 vs. a +0.5% forecast; price index rose by 8.7% q/q vs. 7.9% forecast
U.S. weekly initial unemployment claims was 256K vs. 261K the previous week
Senate Democrats strike deal on the Inflation Reduction Act of 2022
U.S. Core PCE rose by +4.8% y/y in June; employment cost index rose by 5.1% y/y
U.K. Retail sales volumes continued to fall in July according to CBI monthly Distributive Trades Survey
CBI Industrial Trends Survey showed orders balance fell to +8 from +18, the lowest since October
U.K. BRC price shop index jumped from 3.1% to 4.4% in July
U.K. Consumers borrowed an additional £1.8B in consumer credit in June
U.K. mortgage approvals fell by 3% in June to 63K home loans
Sentix investor confidence slumped in July to -26.4 from -19.9 forecast
Germany’s Ifo business climate index fell to 88.6 vs. 90.2 forecast; June was revised lower to 92.2
The European Central Bank will consider the economic situation when deciding on rates – Robert Holzmann
French industrial production stayed unchanged in May vs. projected 0.1% uptick
ECB Lagarde says EU leadership needs to step up and that ECB will continue to raise interest rates
German GfK consumer climate index slipped from -27.7 to -30.6
Annual growth rate of broad monetary aggregate M3 stood at 5.7% in June 2022, after 5.8% in May 2022 (revised from 5.6%)
Spain’s unemployment rate fell to 12.48% in the second quarter of 2022 vs. 13.65% previous read
Eurozone July final consumer confidence -27.0 vs -27.0 prelim
European Central Bank Governing Council member Ignazio Visco said on Thursday that there is a risk of recession in Europe, and that rate hikes going forward will likely be data dependent.
Spanish flash GDP showed 1.1% expansion vs. projected 0.4% growth
French flash GDP printed 0.5% expansion in Q2 vs. estimated 0.2% uptick
KOF Economic Barometer dips by 5.1 points to 90.1 in July
Swiss Retail Sales for June 2022: turnover rose by +3.2% y/y vs. an upwardly revised -1.3% y/y in May
Canada Q2 GDP m/m: 0.0% vs. 0.3% previous, hampered by construction worker’s strike and chip shortages
New Zealand business sentiment for July showed 56.7% pessimism level vs. 62.6% in June
Australia’s annualized inflation rate reaches 6.1% – the fastest annual increase in 31 years
Australia’s retail sales momentum slowed from 0.9% to 0.2% in June
Australian producer prices rose 1.4% as expected, following earlier 1.6% increase
Bank of Japan board reshuffle brings in less dovish members
BOJ Core CPI: 1.6% vs. 1.5% forecast/previous
Japan Services PPI y/y: 2.0% to 106.9 vs. a rise of 1.9% previous
BOJ Deputy Governor Masayoshi Amamiya warned of uncertain wage path, vowed to keep easy policy
Japanese unemployment rate unchanged at 2.6% vs. expected improvement to 2.5%
Japan’s industrial production rebounded by 8.9% after previous 7.5% decline
Japanese retail sales grew 1.5% vs. estimated 2.8% gain, 3.7% previous
Japanese consumer confidence index slumped from 32.1 to 30.2 in July