Focus on US CPI data and Fed rate path

Notes/Observations

- European markets trade lower following a collection of CPI readings that confirmed elevated inflation across the bloc. Outside of Europe, the theme is muted as volatility is quiet ahead of anticipated US CPI data at 08:30 ET.

- UK May tier 1 data positively surprised with growth in Index of Services, Industrial Production and Monthly GDP, against negative estimates. Sterling and FTSE100 ignored results and continue to trade based on a bearish outlook for the UK economy.

- France, Spain and Czech Republic confirmed record highs in Jun CPI. Germany CPI remains elevated but annual pace moved off recent record highs.

- EU macro sentiment still pivoting on energy as it strains economic growth, with eclectic news from a variety of large energy suppliers and Govt officials. UK and EU Nat Gas Futures are still spiking as Russia continues Nord Stream 1 maintenance.

- Attention turns to US CPI later, followed by the start of official earnings season tomorrow with the banking sector.

- Asia closed mixed to flat with Nikkei 225 outperforming at +0.5%. EU indices start -0.4-1.2% with bond yields higher. US futures are flat. Safe haven: Gold 0.0%, DXY +0.1%; Commodity: Brent +1.4%, WTI +1.4%, Copper +0.9%, UK Nat Gas +20.9%; Speculative: BTC +0.2%, ETH +0.8%.

Asia

- New Zealand Central Bank (RBNZ) raised the Official Cash Rate by 50bps to 2.50% (as expected). Comfortable with OCR path outlined back in May statement.

- Bank of Korea (BoK) raised the 7-Day Repo Rate by 50bps to 2.25% (as expected).

- BOK Gov Rhee post rate decision press conference noted that the decision to hike by 50bps was unanimous. Gradual 25bps rate hikes was desirable going forward but pace of rate hikes might still vary.

Ukraine conflict

- Germany Deputy Fin Min Kukies stated that country would be 'off' of Russia coal by Aug 1st, off of Russia oil in Dec 2022.

Europe

- BOE Gov Bailey stated that still saw signs of robust cost and price pressure. MPC’s goal was to curb inflation, no ifs or buts. Options other than a 25 bps hike were on the table.

- Italy PM Draghi stated that the domestic economy was still growing but there were many risks. Reiterated he would not stay in office without 5-Star support for his govt.

- Eight candidates make ballot to succeed Johnson as UK Tory leader and PM. Opinium Poll: Sunak was the preferred candidate for 28% of Tory party members, followed by Truss on 20%.

Americas

- IMF cut 2022 US GDP growth forecast from 2.9% to 2.3%.

- US Bureau of Labor Statistics (BLS) said a release circulating online related to the Jun CPI report was a forgery. Discredits fake inflation report that showed June inflation reached 10.2%.

Energy

- Weekly API Crude Oil Inventories: +4.8M v +3.8M prior.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -0.79% at 413.76, FTSE -0.94% at 7,141.89, DAX -0.65% at 12,821.62, CAC-40 -0.41% at 6,019.33, IBEX-35 -0.65% at 7,962.82, FTSE MIB -1.12% at 21,244.00, SMI -1.39% at 10,916.30, S&P 500 Futures +0.24%].

Market Focal Points/Key Themes: European indices open lower across the board and fell further into the red as the session wore on; better performing sectors include consumer discretionary and real estate; financials and industrials sectors among the leaders to the downside; travel & leisure subsector supported after better than expected airport traffic figures; EDF suspends trading pending government announcement on potential government takeover; reportedly CVC to raise bid for stake Telecom Italia’s service unit; focus on US CPI data later in the day; earnings expected in the upcoming US session include Fastenal and Delta Airlines.

Equities

- Consumer discretionary: JD Wetherspoon [JDW.UK] -5% (trading update).

- Energy: Tullow Oil {TW.UK] -2% (trading update).

- Healthcare: Orion [ORNBV.FI] +7.5% (upfront payment; raises outlook).

- Industrials: Konecranes [KCR.FI] +1.5% (cuts outlook), Gerresheimer [GXI.DE] +1% (earnings).

- Telecom: Telecom Italia [TIT.IT] -2% (CVC denies rumors for raised bid).

Speakers

- ECB's Villeroy (neutral, France) noted that he could not exclude stagflation in France as inflation has broadened while growth was weak but resilient growth.

- Italy League leader Salvini stated that if 5-Star Party did not back govt in upcoming confidence vote on Thursday, then country should hold snap election.

- China PBOC spokesperson Ruan Jianhong noted that it would use monetary policy tools flexibly at the appropriate time. Reiterated stance that liquidity level was reasonably ample.

- China's PBOC official Zou Lan (monetary policy Dept head) noted that domestic economy had bottomed out and recovered since May.

- IEA has cut its 2022-23 global oil demand growth projections citing soaring fuel prices and a worsening economic environment as weighing on consumption. Cut 2022 global oil demand growth from 1.8M bpd to 1.73M bpd.

Currencies/Fixed Income

- USD holding onto the bulk of recent gains. Focus was on release of US Jun CPI reading later today. Market expectations believed that the data would be strong enough to keep Fed on an aggressive rate hike cycle.

- EUR/USD continued to hold above parity. Better EU data in the session helped to stem some downward pressure for the time being.

- GBP/USD was back above the 1.19 handle after UK Monthly GDP data registered its 1st growth in 3 months which helped to raise bets on.

Economic data

- (DE) Germany Jun Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 7.6% v 7.6% prelim.

- (DE) Germany Jun Final CPI EU Harmonized M/M: -0.1% v -0.1 % prelim; Y/Y: 8.2% v 8.2% prelim.

- (UK) May Monthly GDP M/M: 0.5% v 0.1%e; GDP 3M/3M: 0.4% v 0.0%e.

- (UK) May Industrial Production M/M: 0.9% v 0.0%e; Y/Y: +1.4% v -0.3%e.

- (UK) May Manufacturing Production M/M: 1.4% v 0.0%e; Y/Y: 2.3% v 0.3%e.

- (UK) May Construction Output M/M: 1.5% v 0.3%e; Y/Y: 4.8% v 4.3%e.

- (UK) May Index of Services M/M: 0.4% v 0.1%e; 3M/3M: +0.1% v -0.1%e.

- (UK) May Visible Trade Balance: -£21.5B v -£20.6Be; Overall Trade Balance: -£9.8B v -£8.8Be; Trade Balance Non EU: -£10.4B v v -£11.0B prior.

- (FR) France Jun Final CPI M/M: 0.7% v 0.7 % prelim; Y/Y: 5.8% v 5.8% prelim; CPI (ex-tobacco) Index: 111.80v 111.76e.

- (FR) France Jun Final CPI EU Harmonized M/M: 0.9% v 0.8% prelim; Y/Y: 6.5% v 6.5% prelim.

- (CN) China Jun Trade Balance: $97.9B v $76.8Be; Exports Y/Y: 17.9% v 12.9%e; Imports Y/Y: 1.0% v 4.0%e.

- (ES) Spain Jun Final CPI M/M: 1.9% v 1.8% prelim; Y/Y: 10.2% v 10.2% prelim.

- 03:00 (ES) Spain Jun Final CPI EU Harmonized M/M: 1.9% v 1.8% prelim; Y/Y: 10.0% v 10.0% prelim.

- (ES) Spain Jun CPI Core M/M: 0.7% v 0.7% prior; Y/Y: 5.5 v 5.5% prelim.

- (CZ) Czech Jun CPI M/M: 1.6% v 1.5%e; Y/Y: 17.2% v 17.1%e.

- (CZ) Czech May Export Price Index Y/Y: 16.2% v 12.6% prior; Import Price Index Y/Y: 20.7% v 18.4% prior.

- (TR) Turkey May Unemployment Rate: 10.9% v 11.2% prior.

- (EU) Euro Zone May Industrial Production M/M: 0.8% v 0.3%e; Y/Y: 1.6% v 0.3%e.

Fixed income issuance

- (IN) India sold total INR210B vs. INR210B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK2.8B in 3-month and 6-month Bills.

- (IT) Italy Debt Agency (Tesoro) sold total €7.0B vs. €5.75-7.0B indicated range in 3-year, 7-year and 15-year BTP bonds.

- Sold €3.25B vs. €2.75-3.25B indicated range in 1.20% Aug 2025 BTP; Avg Yield: 1.84% v 3.04% prior; bid-to-cover: 1.57x v 1.63x prior.

- Sold €2.5B vs. €2.0-2.5B indicated range in 2.8% Jun 2029 BTP; Avg Yield: 2.76% v 3.75% prior; Bid-to-cover: 1.58x v 1.48x prior.

- Sold €1.25B vs. €1.0-1.25B indicated range in 3.25% Mar 2038 BTP; Avg Yield: 3.45%, bid-to-cover: 1.60x.

Looking ahead

- (DE) Germany May Current Account Balance: No est v €7.4B prior.

- (CH) Switzerland to sell 2032 and 2058 Bonds.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) switch auction.

- 05:30 (DE) Germany to sell €1.5B in 0.0% Aug 2052 bunds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (IL) Israel Jun Trade Balance: No est v -$3.7B prior.

- 06:55 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e July 8th: No est v -5.4% prior.

- 07:00 (ZA) South Africa May Retail Sales M/M: +0.6%e v -0.2% prior; Y/Y: 2.0%e v 3.4% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 07:00 (CZ) Czech Central Bank to comment on CPI data.

- 08:00 (HU) Hungary Central Bank Jun Minutes.

- 08:00 (BR) Brazil May Retail Sales M/M: 1.0%e v 0.9% prior; Y/Y: 2.5%e v 4.5% prior.

- 08:00 (BR) Brazil May Broad Retail Sales M/M: 1.7%e v 0.7% prior; Y/Y: 2.5%e v 1.5% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Jun CPI M/M: 1.1%e v 1.0% prior; Y/Y: 8.8%e v 8.6% prior.

- 08:30 (US) Jun CPI (ex-food/energy) MoM: 0.5%e v 0.6% prior; Y/Y: 5.7%e v 6.0% prior.

- 08:30 (US) Jun CPI Index NSA: 295.716e v 292.296 prior; CPI Core Index SA: 294.451e v 292.289 prior.

- 08:30 (US) Jun Real Avg Hourly Earning Y/Y: No est v -2.9% prior (revised from -3.0%); Real Avg Weekly Earnings Y/Y: No est v -4.0% prior (revised from -3.9%).

- 09:15 (UK) Office for Budget Responsibility (OBR) official in Parliament.

- 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to raise Interest Rate by 75bps to 2.25%.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (CA) Bank of Canada (BOC) Macklem post rate decision press conference.

- 13:00 (US) Treasury to sell 30-year bonds reopening.

- 14:00 (US) Jun Monthly Budget Statement: -$75.0Be v -$66.2B prior.

- 14:00 (US) Federal Reserve Beige Book.

- 15:00 (AR) Argentina May Capacity Utilization: No est v 67.5% prior.

- 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to raise Overnight Rate Target by 50bps to 9.50%.

- 19:01 (UK) Jun RICS House Price Balance: 70%e v 73% prior.

- 20:00 (SG) Singapore Q2 Advance GDP (1st reading) Q/Q: 1.0%e v 0.7% prior; Y/Y: 5.45e v 3.7% prior.

- 21:00 (AU) Australia July Consumer Inflation Expectation Survey: No est v 6.7% prior.

- 21:30 (AU) Australia Jun Employment Change: +30.0Ke v +60.6K prior; Unemployment Rate: 3.8%e v 3.9% prior; Full Time Employment Change: No est v +69.4K prior; Part Time Employment Change: No est v -8.7K prior; Participation Rate: No est v 66.7% prior.

- 23:35 (JP) Japan to sell 20-Year JGB Bonds.