Market movers today
The highlight for markets today will be ECB President Lagarde's speech at the Sintra Forum at 10:00 CET and focus will be on any hints about the new anti-fragmentation tool.
Conclusions from the G7 summit will also be in focus, especially any concrete proposals how to resolve the global food crisis and implement a possible "price cap" on Russian oil.
We will get more insights into how German consumers are faring, with consumer confidence for July and retail sales figures for May, which showed a sharp decline in the previous month. Another weak reading would give more evidence that higher prices are taking their toll on consumers' willingness to spend.
In the US, we also get Conference board consumer confidence and it will be interesting to see whether optimism about the labour market still offsets concerns about inflation.
The 60 second overview
Oil: Oil prices have extended gains ahead of the OPEC meeting tomorrow with Brent climbing above USD 116 per barrel on the back of supply disruptions in two producer countries. Libya, whose production has halved since mid-April to 600,000 barrels a day announced it may suspend exports in the next three days amid protests that have forced oil fields and ports to shut down. Ecuador's oil production is also being disrupted due to anti-government protests. These events are the latest signal of how rising risk of social unrest across emerging markets as a response to e.g. higher food and fuel prices could disrupt commodity markets.
Russia steps up its offensive in Ukraine: Yesterday, a Russian missile strike hit a crowded shopping mall in Kremenchuk, in central Ukraine, killing at least 16 people. Kremenchuk is located southeast of Kyiv, far from the current hotspot of the war in East. Over the last two weeks, Russia seems to have stepped up its aggression both in terms of warfare but also rhetoric, particularly against the Baltics. Meanwhile, the G7 nations are discussing price caps for Russian oil and gas. We see a clear risk of a war fatigue in the West as the war drags on and as its indirect costs become ever more tangible for the European consumer. This is a key threat to European unity in short to medium term and to overall security in longer term.
NATO summit: NATO leaders will convene for a summit starting today and ending on 30 June. Over the next three days, NATO leaders will define NATO's strategic direction for the next decade and in the context of the recent, dramatic changes in the global security environment, substantial modifications are expected to its key Strategic Concept document. Whereas the previous version of the document, published in 2010, made no mention of China and referred to Russia as a partner, this time the alliance is expected to label China as a 'systemic challenge' while calling Russia a 'direct threat'. Another key thing to watch over the coming days is whether Finland and Sweden's accession talks with NATO show any progress. Hopes for a quick accession were quickly dashed in May after Turkey said it would reject membership bids by the two countries that it deems to support terrorist organisations. The Finnish and Swedish delegations met with their Turkish counterparts yesterday, but despite both sides expressing some optimism after the talks we do not expect any major breakthrough over the coming days.
Equities: Equity markets calmed on Monday. Europe inched slightly higher and US somewhat lower for the day. Growth outperformance continues to be the big story despite somewhat higher yields yesterday. Interestingly, the defensive outperformance paused for another day, with both industrials and health care among the better sectors. However, energy the big standout, rebounding almost 3% globally. Dow -0.2%, S&P 500 -0.3%, Nasdaq -0.7% but Russell 20000 0.3%.
FI: European curves bear flattened yesterday, with the belly of the curve being the pivoting point. Bund yields gradually rose through the day and ended 11bp higher on the day. With no particular data release triggering the move, and intra-euro area spreads ended broadly unchanged on the day. Today's highlight is Lagarde's speech at the Sintra Forum at 10:00 CET and focus will be on any hints about the new anti-fragmentation tool. Follow the entire conference here.
FX: It has been a fairly slow start to the week in FX markets albeit with Scandies outperforming most FX Majors. EUR/USD temporarily moved above 1.06 yesterday but closed back below the same threshold level.
Credit: Credit indices exhibited relative calm on Monday despite a slight bullish tone in other risk markets. Itraxx main was unchanged closing at 109.2 while crossover widened only 2.1bp to close at 535.8bp.
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