Yo-Yo market conditions are set to continue today. Global equities and U.S. futures are all in the deep red this morning after an impressive rally yesterday.
Overview
Yesterday’s optimism indeed proved to be fragile. The massive sell-off in risk assets is the biggest factor in the dollar’s rally this year. The S&P 500 is down 21% so far in 2022. Barring a massive rally over the next week, the index will record its worse first half of the year since the 1970s.
Federal Reserve Chairman Jerome Powell will be testifying before Congress starting at 9:30 a.m. It is our view that the Fed now has a clear policy toward fighting inflation and they are willing to act aggressively to get price pressures under control. However, markets are less certain the Fed can negotiate a “soft landing” in which they get price pressures down without driving the economy into a recession.
Powell’s testimony is the main event on today’s docket but there are a number of other Fed speakers throughout the day that is worth watching.
What to Watch Today…
- Existing Home Sales at 10 a.m.
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MXN
The Mexican Peso has been on a tear, experiencing a rally based on the prospects of ongoing economic recovery and higher interest rates to combat inflation. More importantly, the energy insecurity based on fears that Russia and Ukraine will be in conflict for a prolonged period is benefitting a major oil producer such as Mexico.
Geopolitically, AMLO also had a bit of a win seeing the Colombian presidential elections result in favor of the leftist candidate, Gustavo Petro, that has similarities to the Mexican leader. The Latin-American left of center has been consolidating power in the region with Colombia joining Mexico, Honduras, Peru, and Chile in abandoning established regimes.
CAD
The Canadian dollar was slightly weaker overnight but has since gained modestly following inflation data. Canadian consumer price inflation accelerated to a four-decade high. Annual inflation hit 7.7% last month, higher than the estimated 7.3%. Price pressures were up 6.8% in April so today’s print highlights the growing concern.
Markets are expecting the Bank of Canada to raise rates by an aggressive 75 basis points next month, which would bring rates up to 2.25%.
