July 12, 2022Money Financial literacy Economy Good reads Commentary In the news News Trending Weekly update
What's Happening Today - July 12
It’s pretty quiet on the western front today as it appears that summer has finally arrived. North American markets are hovering in neutral territory as we anticipate Wednesday's U.S. Consumer Price Index and Bank of Canada Interest Rate Decision. Recession concerns are the primary focus of markets, with rising price pressures weighing on the global economy, in conjunction with the potential for renewed lock downs in Shanghai. Tomorrow's U.S. CPI data will be influential on the July 27th FOMC Interest Rate Decision. If the reading is in line with the consensus forecast of +1.1% month-over-month (+8.8% year-over-year), CIBC FICC Strategy calls for a 75bps hike call, with a 50bps hike only likely if U.S. CPI has a significant downside miss. With the Bank of Canada promising to be "more forceful" if needed at the June Rate Decision, markets are projecting a 75bps hike for tomorrow's Rate Decision.
European markets are trading lower, weighted by an energy supply crunch. Russia has temporarily suspended gas deliveries via the Nord Stream 1 pipeline due to annual maintenance. Fears of a recession have grown, with Russia threatening to reduce gas flows further to Europe. If you’re making travel plans, Europe is looking quite attractive at the moment as the Euro is now trading close to parity with the U.S. dollar. While there has been some discussion of supportive portfolio flows, the weakening EUR trade backdrop remains a cause for concern. Moreover, while gas supply concerns are contingent to the run lower in the EUR, we are not yet pricing in a complete and protracted cessation of Russian gas supplies.
Meanwhile in the United Kingdom, a fourth straight decline in BRC retail spending in June underlines building consumer pain. Discretionary spending continues to be compromised by the impact of aggressive price gains. Although the 1.3% year-over-year decline was more modest than the 1.5% drop recorded in May, the BRC director noted that ‘‘sales volumes are falling to a rate not seen since the depths of the pandemic.’’ We would be unsurprised should the May reading, due tomorrow, once again underline the fact that on a monthly basis the UK economy has not advanced since January. On to the continuing UK political soap opera! Less than a week since the resignation of Boris Johnson as Conservative Party leader, the race to replace him is now in full swing. In terms of the timeline, nominations close today at 13:00ET, ahead of the first ballot tomorrow. In order to get onto the ballot, any prospective leader will require the support of at least 20 MP’s. In view of 11 declared runners that threshold could prove problematic for some. After the first round tomorrow only those with at least 30 votes will remain in play for round two on Thursday. A third round is scheduled for Monday this comes as the party attempt to limit the candidates to just two by the time that Parliament goes into recess on July 21st. The final two candidates will then face a straight membership ballot, the membership equates to around 0.30% of the total UK electorate, this comes ahead of the new leader being announced on September 5th. Consequently, the UK faces up to eight weeks of Conservative infighting. For now, the race is largely being conducted against something of an arms race of unfunded tax-cut pledges. The lack of fiscal discipline from the currently declared candidates, other than from former Chancellor Sunak, is hardly likely to be rewarded by the market.
Asian markets ended lower. Chinese stocks were under pressure as cases of Covid-19 continues to grow, raising concerns of an economic slowdown. In Japan, the results from the upper house elections flag a landslide victory for the ruling LDP-led coalition. Voter turnout was larger than in the 2019 election, led in large part by Abe’s death last week.
Oil prices tumbled as new Covid-19 curbs in China were announced, the world biggest importer of crude oil, and fears of a global economic slowdown weighted heavily on demand outlook.
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