Daily Market Outlook, June 21, 2022

Overnight Headlines

Fed's Bullard (2022 voter) expects economic expansion to continue this year and that the Fed must meet market expectations for rate hikes
EU member states to formally grant Ukraine candidate status later this week
U.S. Treasury Sec Yellen says gasoline tax holiday worth considering as anti-inflation tool
U.S. Treasury Sec Yellen in talks with allies on Russian oil price cap
Japan PM Kishida comments monetary policy must be considered holistically
Japan FinMin Suzuki says wiill respond to FX moves appropriately if necessary
Australia RBA fllags more rate rises, 75 bp moves unlikely, to stick to 25-50 bps
RBA concedes yield target exit was disorderly, damaging
APAC stocks gained across the board broadly constructive global risk tone
European equity futures are indicative of a higher open Eurostoxx 50 +0.6%
Crude futures continued to nurse some of Friday's heavy losses
Bitcoin makes gains with price action relatively stable around the 21000 level

Asian equity markets are mostly up this morning, but Chinese indices are lagging following reports of Covid outbreaks in Macau and Shenzhen. Following a meeting with former US Treasury Secretary Summers, US President Biden said a US recession was not inevitable. However, Summers warned of a significant chance of stagflation. The EU and China are reported to be planning high-level talks on the economy and climate change. Australian central bank head Lowe confirmed that Aussie inflation is expected to peak at about 7% in Q4. He said he will do what’s needed to return inflation to the 2-3% target but that market interest rate expectations are excessive.

Today’s data calendar is light. However, the monthly CBI industrial survey will provide an indication of recent trends in the factory sector. The May reading for this survey painted a more upbeat picture of demand conditions than its PMI equivalent as it saw both overall orders and export orders at their highest levels of the year. However, less positively it also showed inflationary pressures still very elevated. Today’s June reading comes two days ahead of Thursday’s PMI results for the same month.

Overall readings on US economic activity remain mixed enough for it to be unclear whether growth is as yet slowing significantly in response to higher interest rates. However, one sector that certainly seems to be showing an impact is housing as both construction and sales seem to have rolled over. Existing home sales, for example, have fell in four out of the last five months up to April and markets expect another sizeable decline occurred in May.

Possibly of most interest amongst today’s central bank speakers will be the first of two speeches this week by Bank of England Chief Economist Pill. In an interview last week following the BoE’s 0.25% interest rate rise he seemed to drop hints that he might favour a larger hike in August. So today’s comments will be watched for any further indications.

UK CPI data for May, due early Wednesday, will provide further evidence on the extent of near-term inflationary pressures. Expect annual headline inflation to remain at 9% reflecting a further pickup in petrol and food prices offset by some easing in ‘core’ inflation. The detail of the change in ‘core’ prices will probably be of particular interest to the BoE as it looks for signs of whether inflationary pressures are broadening out or not. There may be indications of this in in services price inflation, which markets forecast to have risen again, but expect that to be offset by a deceleration in goods price inflation.

EUR/USD: 1.0470-80 (824M), 1.0495-00 (340M)
1.0560-65 (320M), 1.0575-85 (1.0BLN), 1.0650 (470M)
USD/JPY: 134.00 (1.35BLN), 134.40-50 (685M),
GBP/USD: 1.2350(229M). EUR/GBP: 0.8440-50 (340M)
AUD/USD: 0.6850-60 (720M), 0.6895-00 (540M)
0.7000 (1.2BLN), 0.7010-15 (727M), 0.7025 (330M)
0.7070 (402M). NZD/USD: 0.6500 (369M)
USD/CHF: 0.9715-20 (310M). EUR/CHF: 1.0100 (347M)
1.0250 (895M), 1.0270-75 (330M). AUD/JPY 95.00 (609M)
USD/CAD: 1.2925-30 (317M)

EURUSD Bias: Bearish below 1.07 Bullish above

EURUSD is trading at highs above 1.0540’s as London traders join the session
USD remains offered in a quiet session with US public holidays yesterday
ECB Lagarde wiill stick to rate-hike plans, must nip fragmentation risk in the bud
Initial offers are seen at 1.0560 ahead 1.0615
Bids eyed towards 1.0450 ahead of cycle lows
Daily VWAP is bearish

GBPUSD Bias: Bearish below 1.26 Bullish above.

GBPUSD trades towRDA 1.23 as the London session gets going
Technically cable held a 50% retracement of last week's advance
BoE Mann, weak GBP makes case for big rate hike, risk of permanently higher inflation
Headline risk comes with Inflation and retail sales later in the week
Less volatility likely today following last week's fireworks around the BOE
Resistance remains sited at 1.2410
Support eyed at 1.2180
Daily VWAP is bearish

USDJPY Bias: Bullish above 132 Bearish below

AUDUSD Bias: Bullish above .7200 Bearish below

Aussie catches bid as global risk sentiment steadies
RBA Governor Lowe ‘Australians should be prepared for further interest rate increases’
After early pullback AUD again trades back above .6970
Continued concerns regarding global growth likely to cap
Offers seen towards .7075, bids eyed back at .6900
Daily VWAP is bearish