Daily Market Update

Jump to safety as recession talk increases

June 23, 2022

The U.S. Dollar is trading in stronger ranges this morning following a return to fear across bond and equity markets as investors weigh the chances of a recession developing in the U.S. as a result of tighter monetary policy during a particularly uncertain time. 

Overview

China remains affected by its zero-COVID policies as more lockdowns in the Shanghai region threaten the ability of the globe to get away from pandemic-led woes. Fed Chairman Jerome Powell’s testimony to the Senate yesterday left a very sour note as the official admitted to central bank policies inflicting enough pain that a recession could develop along with the other negative factors affecting the economy.Indeed, this morning feels like a day when Fed credibility is once again under question with Senators indicating that they feel the Fed is more limited in their intended effects and tools to really improve the situation. In previous writings, we have addressed this concern and now it is a mainstream issue. At the moment, doubts are increasing that the Fed will hike rates beyond the end of this year and in fact, might pull back later on.The buck remains a source of safety when these downturn moments paint an unclear picture of what is to come with war, pandemic woes, and supplies all making for a tough headache. Powell will address the House of Representatives later so chances for further scrutiny over his work.

 

What to Watch Today…

  • No major economic events scheduled for today

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EUR

The Euro seemed to be on a good run until data came hitting back with reality over the lack of momentum and a potential slowdown in the Euro-zone. Today’s print of June Purchasing Managers Index figures revealed a less than ideal decline from the prior month’s expansion for the region’s two largest economies in Germany and France. Overall, the Euro-zone’s PMIs came in lower than expected for both Services as well as Manufacturing.

If there is weakness going into the second half of the year, it will bode poorly for the Euro which had gained resilience to the war’s negative items as well as the possibility of interest-rate increases being merited on growth.

 

GBP

The Pound is under slight pressure today following an inflation report that suggests things are cooling down in price expectations. This ultimately counters the narrative for the need to hike interest rates aggressively and lowers bets for longer cycles of tightening.

Meanwhile, PMIs in the U.K. came out better than in neighboring Europe with expansion in Services making up for coming up short on the Manufacturing end. There could be more room for movement for the Sterling as global trade matters remain fragile.

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