GLOBAL CAPITAL MARKETS OVERVIEW:  

European shares fell on Wednesday, with Germany's DAX and the pan-European Stoxx 600 down 1% and 0.7%, respectively, snapping a three-day winning streak, as fears of an acceleration in monetary tightening weighed on risk sentiment, leading to recession fears. Growth jitters have led to steep losses in the energy and metallurgical sectors, with European steelmakers Voestalpine and Arcellormital down 11-10% after being downgraded by JPMorgan. Meanwhile, Fed Chairman Jerome Powell testified to Congress that a U.S. recession is "certainly possible." On the economic data front, annual UK inflation rose to a 40-year high of 9.1% in May, driven by soaring energy and food prices. Flash estimates pointed to broadly low consumer confidence in the eurozone in June. The CAC 40 index fell 0.81% to close at 5,916.63 on Wednesday, snapping two sessions of gains, as the U.K.'s fresh slump came despite a fifth-rate hike by the Bank of England and Federal Reserve Chairman Jerome Powell's determination to fight inflation. The round of high inflation has fueled fears of aggressive monetary policy tightening and slowing growth. Cyclical stocks led losses, notably ArcelorMittal (down 9.56%), Carrefour (down 7.16%), Airbus (down 3.25%), and Saint-Gobain (down 2.98%). In addition, utility stocks led by Legrand and Schneider Electric were also dragged as Rexl shares fell after a Mediaprt article raised suspicions of tax evasion in Switzerland by the company. Conversely, Capgemini (up 2.01%) led the tech sector higher. Also, Orange rose 1.65% on Barclays' good rating. On Wednesday, the FTSE MIB index fell 1.4% to close at 21,789, reversing the week's progress, as recession fears and expectations of austerity again weighed on the energy and industrial sectors. While underscoring the difficulty of achieving a soft landing through tightening, investors digested comments from Federal Reserve Chairman Jerome Powell during his congressional testimony that he said a recession is possible but not imminent. Eni, tracking a drop in oil prices, fell 3.5%, while Tenaris tracked a selloff by refinery steel pipe makers, down more than 5.1%. In addition, the company announced that it would issue a planned 2-billion-euro allotment from June 27. The issue price of the new shares is slightly more than 1 euro, and the company's share price fell by more than 21%. The FTSE 100 was down 0.8% at 7.094.97, pulling back from a two-session winning streak after the country recorded high inflation in May despite the Bank of England raising interest rates for the fifth time last week. Fears of slowing economic growth have resurfaced. Sentiment weakened further as the Fed chair reaffirmed his determination to fight inflation in testimony before Congress today. The biggest losers included Polymetal International (down 8.95%), Glencore (down 6.89%), and Antofagasta (down 6.43%). Conversely, losses were limited by gans from JD Sports Fashion (6.27%), Centrica (4.58%), and Natwest Group PLC (3.03%). Energy and banking sectors rebounded sharply on Wednesday, with fertilizer producers extending gains with the MOEX-Russia index offsetting early losses, rising 0.6% to 2,374. Lukoil shares rose 2.5%, and Tatneft rose nearly 1% as China and India consolidated as significant buyers of Russian oil and European countries have phased out supplies. Chemical and fertilizer makers also posted gains, led by higher fertilizer prices and a 2.3 percent gain in Akron shares. On the other hand, Gazprom fell 2%, posting a fourth straight loss as gas flows to Europe remain low, and surging gas prices could lead to the LNG giant Tax increase of 416 billion rubles alone. Wall Street turned an initial sell-off into a rally on Wednesday after Federal Reserve Chairman Jerome Powell's remarks at a Senate hearing calmed investors' nerves. "We expect the current rate hike to be appropriate," Powell said. “Inflation has risen significantly over the past year, and more surprises are likely to come. So, we need to be nimble with incoming data and a changing outlook.” Tech stocks get some respite Opportunities such as meta-platforms, Google owner Alphabet, Amazon, and other large-cap companies. Microsoft, Apple, and Tesla trade in positive territory. On the other hand, the energy sector remained a significant drag as oil companies suffered heavy losses due to falling crude prices. All three major U.S. stock indexes fell about 1 percent in early trade on Wednesday, as persistent concerns about rising inflation and rising interest rates against slowing global growth continued to roil sentiment. Economically sensitive market sectors, especially the energy sector, saw the biggest declines, with shares of Marathon Oil, ConocoPhillips, Occidental Petroleum, and Exxon Mobil down 6%-4%. Meanwhile, Federal Reserve Chairman Jerome Powell will appear before Congress on Wednesday to begin two days of testimony as investors look for further clues on the central bank's rate hike path. In remarks prepared for the Senate Banking Committee, Powell reiterated that the central bank would use all its monetary policy tools to bring inflation back to its 2 percent target.The S&P/TSX fell more than 1.5% near 18,900, set to break a two-session winning streak, weighed down by recession fears after higher-than-expected domestic inflation added to the Bank of Canada's aggressive monetary tightening bet. Commodity stocks fell the most. Bombardier fell nearly 1% among individual stocks as workers considered new wage packages amid ongoing strikes. Parkland Fuel fell more than 2.5% after Goldman Sachs lowered its price target on the company's stock. KB Home will report results after the market closes on Wednesday on the earnings front. On Wednesday, the Shanghai Composite Index fell 1.2% to close at 3,267 points, while the Shenzhen Composite Index fell 1.43% to close at 12,247 points, further retreating from a three-month high. Risk aversion dominated market sentiment, and the market was worried about global monetary tightening. May lead to recession. Investors are also looking ahead to economic indicators for June to gauge the pace of the domestic economic recovery while awaiting clarity on future policy moves. China's central bank paused policy easing on Monday, keeping its benchmark lending rate unchanged to avoid further divergence between monetary policy and other economies. Still, analysts expect more stimulus for the rest of the year. Growth stocks led losses, with China Northern Rare Earth (down 4.3%), Gothic (down 10%), Luxshare Precision (down 5.2%), Weir Semiconductor (down 5.7%), and Everbright Securities (down 4.2%).  New Zealand S&P/New Zealand shares fell 22.92 points, or 0.21%, to settle at 10,678.67 after closing gains in the previous session. The index recovered to a near 26-month low on Monday amid worries about the risk of a recession that pushed U.S. stock futures much lower after Wall Street's sharp gains on Tuesday. Traders were also frustrated by reports on Tuesday that New Zealand's consumer confidence fell to a record low of 78.7 in the second quarter, with household budgets tightening amid financial pressures. On the trade front, New Zealand's trade surplus narrowed to NZ$263 million in May 2022 from NZ$497 million in the same month a year ago, as imports grew faster than imports. Stocks in the red were Broad (down 5.3%), My Grocery Bag (down 3.5%), Contact Energy (down 3.3%), and Air New Zealand (down 2.7%) ). In contrast, Fletcher Building rose 4.9%, rising 3.6% on Tuesday after the company's chief executive said the market for the product would rebalance in October. On Wednesday, the Nikkei 225 lost 0.37% to end at 26,149. In comparison, the broader Topix index lost 0.19% to end at 1,853, reversing early gains and tracking a slide in U.S. stock futures as sentiment against the aggressive currency and Fears that tightening could lead to a global recession weighed on investor sentiment. Meanwhile, Bank of Japan officials agreed not to change their stance and would not hesitate to take further easing measures, if necessary, minutes of the last Bank of Japan meeting showed. They also acknowledged the impact of a weaker yen on businesses and the broader economy but opposed an immediate solution to money market problems. Index heavyweights fell sharply, including Tokyo Electron (down 3.9%), Mitsubishi (down 6%), Nippon Yusen (down 2.4%), Kawasaki Keesen (down 3.4%), and Inpex (down 3.9%). Meanwhile, healthcare companies and automakers bucked the trend and posted some gains. Australia S&P/ASX 200 fell 0.23% to end at 6509 in volatile trade as grain prices recovered from the previous session as caution dominated sentiment amid concerns that an aggressive monetary tightening could lead to a global recession. A day after Reserve Bank of Australia governor Philip Lowe said further tightening would occur as interest rates remained "very low," an." Wild inflation to hit 7 percent by the end of the year. Still, he Underestimated the possibility of an outsized rate hike of 75 basis points. Technology stocks led losses, including Computershare (down 3%), Block Inc (down 1.4%), and Wisetech Global (down 1.8%). Clean energy-related names also saw heavy selling, with Lake Resources (down 11.4%), Core Lithium (down 15.4%), Lynas Rare Earth (down 4.3%), Pilbara Minerals (down 2.8%), and Allkem Ltd. (Down 1.5%) fell sharply. Meanwhile, energy and heavyweight mining companies resisted the market route and made some gains.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: Federal Reserve Chairman Jerome Powell acknowledged in testimony before the Senate Banking Committee on Wednesday that sharply rising interest rates could lead to a recession in the U.S. economy and that avoiding such a recession depends mainly on factors beyond the Fed's control. "The other risk, though, is that we won't be able to restore price stability, and we'll allow this high inflation to take hold in the economy," Powell added. "We cannot fail this task. We have to get back to 2 percent inflation." Regarding the latest rate hike, the chairman also said, "We expect continued rate hikes to be appropriate," adding that "inflation has unexpected rise mid-year, with more surprises likely to come. So, we need to be flexible with upcoming data and changing outlook." Fed to raise funds rate at June 2022 meeting It was revised up 75 basis points to 1.5%-1.75%, rather than the 50 basis points initially expected after inflation unexpectedly accelerated to its highest level in 41 years last month.

- US: Mortgage applications in the U.S. rose 4.2% in the week ended June 17, following a 7.9% surge in traditional applications that led to a 6.6% increase in mortgage applications. Meanwhile, the refinance index fell 3.1%, and the average rate on a 30-year fixed-rate mortgage rose 33 basis points to 5.98%, the highest level since November 2008. However, compared with a year ago, the number of applications fell by 10%. Meanwhile, the average loan size was just over $420,000, well below the peak of $460,000 earlier this year, a possible sign of slowing home price growth.

- RU: In May 2022, Russian producer prices rose 19.3% year-on-year, moderating from a record high of 31.5% set the previous month. This was the lowest producer inflation rate since March 2021, as prices slowed sharply in mining (26.1% vs. 63.5%) and manufacturing (19.5% vs. 25.8%). Meanwhile, the cost of electricity, gas, and steam accelerated (5.3% and 4.8%, respectively). As a result, the monthly producer price index fell 6.9%, the most significant drop since April 2020, from 6.3% in April.

- EU: The Eurozone consumer confidence index fell 2.4 percentage points from the previous month to -23.6 in June 2022, the lowest level since the record low in April 2020 when the COVID-19 pandemic began. Preliminary estimates show that the market is expecting -20.5, and the long-term average is -11.0. Across the EU, consumer confidence fell by 1.9 percentage points to -24.

- CA: In May 2022, annual inflation in Canada accelerated to 7.7%, the highest level since January 1983, and above market expectations of 7.4%. The main upward pressure came from transportation, food, and housing, as Western sanctions over Russia's attack on Ukraine continued to push up energy and commodity prices. Transportation costs surged 14.6% (11.2% in April) and gasoline prices rose 48% (36.3% in April). Meanwhile, food inflation remained 8.8%, and food prices rose 9.7%. Home prices rose at a 7.4% rate as mortgage lending continued to rise. Excluding gasoline, the CPI hit an all-time high of 6.3%. Every month, consumer prices rose 1.4%, beating consensus estimates for a 1% gain and recovering from 0.6% in April.

- UK: U.K. stock futures, which track the broader market, fell on Wednesday, with the benchmark FTSE 100 on track to snap a two-day winning streak amid ongoing concerns over the impact of soaring inflation and tighter monetary policy on the growth momentum. On the data front, UK inflation hit 9.1% in May 2022 from a year earlier, the highest level since 1982, as soaring food and energy prices continue to deepen the country's cost of living crisis.

- UK: In 2021, annual inflation in the UK rose to 9.1% from 9% in the previous month, the highest level since 1982, in line with market expectations. Accelerated Costs of Housing and Utilities (19.4% vs. 19.2%); Transportation (11.8% vs. 11.5%); Food and Non-Alcoholic Beverages (8.6% vs. 6.7%); Alcoholic Beverages and Tobacco (5% vs. 4.4%); Another In terms of price increases, restaurants and hotels saw smaller price increases (7.6% and 7.9%, respectively); entertainment and culture (5% vs. 5.9%); health (1.8% vs. 2.3%); clothing and footwear (7%, respectively) and 8.3%). Meanwhile, inflation remained steady in the education sector (4.5%), communications (2.8%), and miscellaneous goods and services (2.9%). On a monthly basis, consumer prices rose 0.7%, with the main upward pressure coming from food and non-food prices.

- UK: In May 2022, the ex-factory price of goods produced by UK manufacturers rose by 15.7% year-on-year, beating market expectations of 14.7% and hitting the highest producer inflation rate since June 1980. On a monthly basis, producer prices for output rose 1.6%, beating market expectations of 1.5%.

- SW: Sweden's unemployment rate fell from 9.8% a year earlier to 8.5% in May 2022, with the number of unemployed down 64,000 from a year earlier to 482,000. Meanwhile, employment rose by 123,000 to 5.18 million, and the employment rate rose to 68.7% from 67.2% last year. Seasonally adjusted, the unemployment rate was 7.7% in May.

- NZ: New Zealand's trade surplus narrowed to NZ$263 million in May 2022 from NZ$497 million a year earlier. Imports rose 24% year on year to NZ$6.7 billion, led by higher purchases of petroleum and products (+39%), machinery and equipment (+15%), and fertilizers (+355%). Imports increased from all major partners, namely China (25%); EU (12%); Australia (18%); US (5.5%) and Japan (41%). Meanwhile, exports rose 18% year-on-year to NZ$7 billion, driven by higher sales of meat and edible offal (up 27%), milk powder, butter and cheese (up 11%); fruit (up 11%) 23%), and crude oil (up 100%). Sales rose in almost all major destinations, namely Australia (49%), the US (18%), the EU (23%), and Japan (0.7%), but declined in China (3.8%) .

 

LOOKING AHEAD:   

Today, investors will receive:

- USD: Unemployment Claims, Current Account, Flash Manufacturing PMI, Flash Services PMI, Fed Chair Powell Testifies, Natural Gas Storage, and Bank Stress Test Results.

- EUR: French Flash Services PMI, French Flash Manufacturing PMI, German Flash Manufacturing PMI, German Flash Services PMI, ECB Economic Bulletin, Flash Manufacturing PMI, Flash Services PMI, and German Buba President Nagel Speaks.

- GBP: Public Sector Net Borrowing, Flash Manufacturing PMI, Flash Services PMI, and CBI Realized Sales.

- JPY: Flash Manufacturing PMI.

- AUD: Flash Manufacturing PMI and Flash Services PMI.

 

KEY EQUITY & BOND MARKET DRIVERS:

- US: U.S. stock futures contracts linked to major stock indexes fell about 1 percent on Wednesday, with investors not opening new positions ahead of Federal Reserve Chairman Jerome Powell's testimony to Congress later in the day. Investors are now looking for further clues on the central bank’s rate hike path amid concerns over rising inflation and interest rates against the backdrop of slowing global growth. In regular trading on Tuesday, the Dow rose 2.15%, the S&P 500 rose 2.45%, and the Nasdaq Composite rose 2.51%.

- GE: 

Germany's 10-year bond yield fell below 1.7% on June 16, hitting an 8-1/2-year high of 1.926%, as investors sought refuge in government bonds during the stock market sell-off. The Federal Reserve and other central banks have tightened monetary policy more aggressively to tame inflation, raising fears of slowing economic growth. European Central Bank President Christine Lagarde reiterated plans to raise interest rates twice this summer after the ECB announced new measures to ease market volatility, reviving fears of a recent debt crisis in the euro zone's southern periphery. Meanwhile, the spread between Italian and German 10-year bond yields widened by 2.5 to 205 basis points after Italian Foreign Minister Luigi Di Maio said he would withdraw from the Five Star Movement to form a new pro-government parliamentary group.

- IT: Italy's 10-year BTP yield fell back to 3.7% in late June as recession fears boosted demand for safer securities, while ECB policymakers said they would address fragmentation concerns in the central bank's policy implementation. With major central banks accelerating their tightening cycles, including a 25-basis-point rate hike by the European Central Bank in July, market concerns about a new round of debt crises have intensified, and the ECB's emphasis on preventing splits has eased the market's appetite for bonds from economically vulnerable member states. disgust. However, further calls for Italian bonds were muted after Foreign Minister Di Maio said he would withdraw from the Five Star Movement. Despite Di Maio's outspoken support for Prime Minister Draghi, his departure could jeopardize the prime minister's national unity. The spread between 10-year British and German bunds widened to 2.1 points after the news, reflecting a slight increase in the Italian debt risk premium.

 

 

 

STOCK MARKET SECTORS:

- High: Health Care, Utilities, Communication Services, Real Estate, Consumer Discretionary.

- Low: Energy, Materials, Industrial.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: On Wednesday, the U.S. dollar index fell 0.5 percent to below 104, with investors betting that a recession in the U.S. economy was more likely in the coming years amid record-high inflation and a weak macroeconomic backdrop. Federal Reserve Chairman Powell said in semi-annual testimony to the Senate Banking Committee that the Federal Reserve will continue to raise interest rates to contain the sharpest inflation in nearly 30 years, as inflation unexpectedly rose in the past and future years. There may be more surprises. According to interest rate futures, the market expects the Fed funds rate to peak at around 3.6% in the middle of next year.

- CNY: The offshore yuan fell to around 6.72 to the dollar, erasing gains earlier in the week as China's central bank is expected to resume easing policy when other major economies are raising interest rates. Investors have also dumped riskier assets in favor of the U.S. dollar, fearing that a global monetary tightening could lead to a recession. Meanwhile, the People's Bank of China recently kept benchmark lending rates unchanged at 3.7% for one-year loans and 4.45% for five-year loans. Investors are now looking ahead to economic indicators for June to gauge the pace of the domestic economic recovery while awaiting clarity on future policy moves.

- NZD: The New Zealand dollar weakened by more than $0.63, falling to a two-year low last week as aggressive monetary tightening led to heightened global recession risks, dragging down commodity prices and related assets. Meanwhile, markets are betting that the Reserve Bank of New Zealand will more than double interest rates to 4.25% by the end of the year, implying a series of half-percentage-point hikes at the upcoming meeting. The Royal Bank of New Zealand raised the official cash rate by 50 basis points to 2% in May and said rates needed to be grown "more and more quickly." As a result, inflation took three 25 basis point hikes. As a result, in the first quarter of 2022, New Zealand's inflation rate reached 6.9%, well above the central bank's 1%-3% target range.

- AUD: The Australian dollar fell to around $0.69, slumping to a two-year low in May, as the risk of a global recession increased due to aggressive monetary tightening, dragging down commodity prices and related assets. Meanwhile, higher domestic yields supported the Aussie, with Australia's benchmark 10-year yield hovering near an eight-year high of around 4%. The Reserve Bank of Australia surprised markets by announcing at its June meeting that it would raise interest rates by 50 basis points to 0.85%, citing rising consumer prices and economic recovery and pledging to "take necessary measures" to curb inflation soaring. RBA governor Philip Lowe recently said further tightening would be expected as interest rates remain "very low," and he expects inflation to hit 7 percent by the end of the year. Still, he has underestimated the possibility of a massive 75 basis point hike.

- JPY: The yen weakened by more than 136 yuan against the dollar, falling further to its lowest level since 1998 as the Bank of Japan stuck to its low-yield, the stimulative policy as other major central banks raised interest rates. The central bank also resisted market pressure on the yen and government bonds following speculation by mainly foreign investors that the central bank might adjust its current yield control policy. As widely expected, the Bank of Japan kept its key short-term interest rate unchanged at -0.1% and the 10-year bond yield around 0% at its June meeting. The Fed committee also said it would propose unlimited bond purchases to defend the implied 0.25% daily cap and repeat market-operating guidelines it set in April. Meanwhile, the Bank of Japan recently made a rare reference to money markets, saying it needed to be concerned about its impact on the economy and markets.

- US: The U.S. dollar index rose above 104.5 on Wednesday, recouping some losses from previous sessions and edging closer to a 20-year high reached last week, as expectations that the Federal Reserve will continue to tighten monetary policy underpinned the greenback aggressively. Last week, the U.S. central bank raised its benchmark interest rate by 75 basis points, the most significant increase since 1994, to control inflation. Investors are now awaiting Federal Reserve Chairman Jerome Powell's appearances in Congress on Wednesday and Thursday for fresh insights into the central bank's future policy plans. Analysts expect the Fed to raise rates by another 75 basis points in July and then by 50 basis points in September. The dollar also benefited from safe-haven inflows sparked by fears of a global economic slowdown.

 

CHART OF THE DAY:

Sterling fell below $1.22, close to a two-year low below $1.20 hit on June 14, after the latest CPI report showed inflation rising to a 40-year high, putting more pressure on the Bank of England despite recession risks. UK consumer prices rose 9.1% in May from a year earlier, the highest level since 1982, as soaring food and energy prices continue exacerbating the country's cost of living crisis. The Bank of England has raised rates five times since it became the first major central bank to raise rates in the wake of the Covid-19 pandemic in December and is currently at 1.25%. Meanwhile, recession fears remain widespread, with the UK economy shrinking by 0.3% in April and 0.1% in March.

-  GBPUSD - D1, Resistance (consolidation) around ~ 1.26863, Support (target zone) around  ~ 1.20632

Encouraging price action, as the market was quick to recoup opening losses

GLOBAL CAPITAL MARKETS OVERVIEW:  

European shares fell on Wednesday, with Germany's DAX and the pan-European Stoxx 600 down 1% and 0.7%, respectively, snapping a three-day winning streak, as fears of an acceleration in monetary tightening weighed on risk sentiment, leading to recession fears. Growth jitters have led to steep losses in the energy and metallurgical sectors, with European steelmakers Voestalpine and Arcellormital down 11-10% after being downgraded by JPMorgan. Meanwhile, Fed Chairman Jerome Powell testified to Congress that a U.S. recession is "certainly possible." On the economic data front, annual UK inflation rose to a 40-year high of 9.1% in May, driven by soaring energy and food prices. Flash estimates pointed to broadly low consumer confidence in the eurozone in June. The CAC 40 index fell 0.81% to close at 5,916.63 on Wednesday, snapping two sessions of gains, as the U.K.'s fresh slump came despite a fifth-rate hike by the Bank of England and Federal Reserve Chairman Jerome Powell's determination to fight inflation. The round of high inflation has fueled fears of aggressive monetary policy tightening and slowing growth. Cyclical stocks led losses, notably ArcelorMittal (down 9.56%), Carrefour (down 7.16%), Airbus (down 3.25%), and Saint-Gobain (down 2.98%). In addition, utility stocks led by Legrand and Schneider Electric were also dragged as Rexl shares fell after a Mediaprt article raised suspicions of tax evasion in Switzerland by the company. Conversely, Capgemini (up 2.01%) led the tech sector higher. Also, Orange rose 1.65% on Barclays' good rating. On Wednesday, the FTSE MIB index fell 1.4% to close at 21,789, reversing the week's progress, as recession fears and expectations of austerity again weighed on the energy and industrial sectors. While underscoring the difficulty of achieving a soft landing through tightening, investors digested comments from Federal Reserve Chairman Jerome Powell during his congressional testimony that he said a recession is possible but not imminent. Eni, tracking a drop in oil prices, fell 3.5%, while Tenaris tracked a selloff by refinery steel pipe makers, down more than 5.1%. In addition, the company announced that it would issue a planned 2-billion-euro allotment from June 27. The issue price of the new shares is slightly more than 1 euro, and the company's share price fell by more than 21%. The FTSE 100 was down 0.8% at 7.094.97, pulling back from a two-session winning streak after the country recorded high inflation in May despite the Bank of England raising interest rates for the fifth time last week. Fears of slowing economic growth have resurfaced. Sentiment weakened further as the Fed chair reaffirmed his determination to fight inflation in testimony before Congress today. The biggest losers included Polymetal International (down 8.95%), Glencore (down 6.89%), and Antofagasta (down 6.43%). Conversely, losses were limited by gans from JD Sports Fashion (6.27%), Centrica (4.58%), and Natwest Group PLC (3.03%). Energy and banking sectors rebounded sharply on Wednesday, with fertilizer producers extending gains with the MOEX-Russia index offsetting early losses, rising 0.6% to 2,374. Lukoil shares rose 2.5%, and Tatneft rose nearly 1% as China and India consolidated as significant buyers of Russian oil and European countries have phased out supplies. Chemical and fertilizer makers also posted gains, led by higher fertilizer prices and a 2.3 percent gain in Akron shares. On the other hand, Gazprom fell 2%, posting a fourth straight loss as gas flows to Europe remain low, and surging gas prices could lead to the LNG giant Tax increase of 416 billion rubles alone. Wall Street turned an initial sell-off into a rally on Wednesday after Federal Reserve Chairman Jerome Powell's remarks at a Senate hearing calmed investors' nerves. "We expect the current rate hike to be appropriate," Powell said. “Inflation has risen significantly over the past year, and more surprises are likely to come. So, we need to be nimble with incoming data and a changing outlook.” Tech stocks get some respite Opportunities such as meta-platforms, Google owner Alphabet, Amazon, and other large-cap companies. Microsoft, Apple, and Tesla trade in positive territory. On the other hand, the energy sector remained a significant drag as oil companies suffered heavy losses due to falling crude prices. All three major U.S. stock indexes fell about 1 percent in early trade on Wednesday, as persistent concerns about rising inflation and rising interest rates against slowing global growth continued to roil sentiment. Economically sensitive market sectors, especially the energy sector, saw the biggest declines, with shares of Marathon Oil, ConocoPhillips, Occidental Petroleum, and Exxon Mobil down 6%-4%. Meanwhile, Federal Reserve Chairman Jerome Powell will appear before Congress on Wednesday to begin two days of testimony as investors look for further clues on the central bank's rate hike path. In remarks prepared for the Senate Banking Committee, Powell reiterated that the central bank would use all its monetary policy tools to bring inflation back to its 2 percent target.The S&P/TSX fell more than 1.5% near 18,900, set to break a two-session winning streak, weighed down by recession fears after higher-than-expected domestic inflation added to the Bank of Canada's aggressive monetary tightening bet. Commodity stocks fell the most. Bombardier fell nearly 1% among individual stocks as workers considered new wage packages amid ongoing strikes. Parkland Fuel fell more than 2.5% after Goldman Sachs lowered its price target on the company's stock. KB Home will report results after the market closes on Wednesday on the earnings front. On Wednesday, the Shanghai Composite Index fell 1.2% to close at 3,267 points, while the Shenzhen Composite Index fell 1.43% to close at 12,247 points, further retreating from a three-month high. Risk aversion dominated market sentiment, and the market was worried about global monetary tightening. May lead to recession. Investors are also looking ahead to economic indicators for June to gauge the pace of the domestic economic recovery while awaiting clarity on future policy moves. China's central bank paused policy easing on Monday, keeping its benchmark lending rate unchanged to avoid further divergence between monetary policy and other economies. Still, analysts expect more stimulus for the rest of the year. Growth stocks led losses, with China Northern Rare Earth (down 4.3%), Gothic (down 10%), Luxshare Precision (down 5.2%), Weir Semiconductor (down 5.7%), and Everbright Securities (down 4.2%).  New Zealand S&P/New Zealand shares fell 22.92 points, or 0.21%, to settle at 10,678.67 after closing gains in the previous session. The index recovered to a near 26-month low on Monday amid worries about the risk of a recession that pushed U.S. stock futures much lower after Wall Street's sharp gains on Tuesday. Traders were also frustrated by reports on Tuesday that New Zealand's consumer confidence fell to a record low of 78.7 in the second quarter, with household budgets tightening amid financial pressures. On the trade front, New Zealand's trade surplus narrowed to NZ$263 million in May 2022 from NZ$497 million in the same month a year ago, as imports grew faster than imports. Stocks in the red were Broad (down 5.3%), My Grocery Bag (down 3.5%), Contact Energy (down 3.3%), and Air New Zealand (down 2.7%) ). In contrast, Fletcher Building rose 4.9%, rising 3.6% on Tuesday after the company's chief executive said the market for the product would rebalance in October. On Wednesday, the Nikkei 225 lost 0.37% to end at 26,149. In comparison, the broader Topix index lost 0.19% to end at 1,853, reversing early gains and tracking a slide in U.S. stock futures as sentiment against the aggressive currency and Fears that tightening could lead to a global recession weighed on investor sentiment. Meanwhile, Bank of Japan officials agreed not to change their stance and would not hesitate to take further easing measures, if necessary, minutes of the last Bank of Japan meeting showed. They also acknowledged the impact of a weaker yen on businesses and the broader economy but opposed an immediate solution to money market problems. Index heavyweights fell sharply, including Tokyo Electron (down 3.9%), Mitsubishi (down 6%), Nippon Yusen (down 2.4%), Kawasaki Keesen (down 3.4%), and Inpex (down 3.9%). Meanwhile, healthcare companies and automakers bucked the trend and posted some gains. Australia S&P/ASX 200 fell 0.23% to end at 6509 in volatile trade as grain prices recovered from the previous session as caution dominated sentiment amid concerns that an aggressive monetary tightening could lead to a global recession. A day after Reserve Bank of Australia governor Philip Lowe said further tightening would occur as interest rates remained "very low," an." Wild inflation to hit 7 percent by the end of the year. Still, he Underestimated the possibility of an outsized rate hike of 75 basis points. Technology stocks led losses, including Computershare (down 3%), Block Inc (down 1.4%), and Wisetech Global (down 1.8%). Clean energy-related names also saw heavy selling, with Lake Resources (down 11.4%), Core Lithium (down 15.4%), Lynas Rare Earth (down 4.3%), Pilbara Minerals (down 2.8%), and Allkem Ltd. (Down 1.5%) fell sharply. Meanwhile, energy and heavyweight mining companies resisted the market route and made some gains.

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: Federal Reserve Chairman Jerome Powell acknowledged in testimony before the Senate Banking Committee on Wednesday that sharply rising interest rates could lead to a recession in the U.S. economy and that avoiding such a recession depends mainly on factors beyond the Fed's control. "The other risk, though, is that we won't be able to restore price stability, and we'll allow this high inflation to take hold in the economy," Powell added. "We cannot fail this task. We have to get back to 2 percent inflation." Regarding the latest rate hike, the chairman also said, "We expect continued rate hikes to be appropriate," adding that "inflation has unexpected rise mid-year, with more surprises likely to come. So, we need to be flexible with upcoming data and changing outlook." Fed to raise funds rate at June 2022 meeting It was revised up 75 basis points to 1.5%-1.75%, rather than the 50 basis points initially expected after inflation unexpectedly accelerated to its highest level in 41 years last month.

- US: Mortgage applications in the U.S. rose 4.2% in the week ended June 17, following a 7.9% surge in traditional applications that led to a 6.6% increase in mortgage applications. Meanwhile, the refinance index fell 3.1%, and the average rate on a 30-year fixed-rate mortgage rose 33 basis points to 5.98%, the highest level since November 2008. However, compared with a year ago, the number of applications fell by 10%. Meanwhile, the average loan size was just over $420,000, well below the peak of $460,000 earlier this year, a possible sign of slowing home price growth.

- RU: In May 2022, Russian producer prices rose 19.3% year-on-year, moderating from a record high of 31.5% set the previous month. This was the lowest producer inflation rate since March 2021, as prices slowed sharply in mining (26.1% vs. 63.5%) and manufacturing (19.5% vs. 25.8%). Meanwhile, the cost of electricity, gas, and steam accelerated (5.3% and 4.8%, respectively). As a result, the monthly producer price index fell 6.9%, the most significant drop since April 2020, from 6.3% in April.

- EU: The Eurozone consumer confidence index fell 2.4 percentage points from the previous month to -23.6 in June 2022, the lowest level since the record low in April 2020 when the COVID-19 pandemic began. Preliminary estimates show that the market is expecting -20.5, and the long-term average is -11.0. Across the EU, consumer confidence fell by 1.9 percentage points to -24.

- CA: In May 2022, annual inflation in Canada accelerated to 7.7%, the highest level since January 1983, and above market expectations of 7.4%. The main upward pressure came from transportation, food, and housing, as Western sanctions over Russia's attack on Ukraine continued to push up energy and commodity prices. Transportation costs surged 14.6% (11.2% in April) and gasoline prices rose 48% (36.3% in April). Meanwhile, food inflation remained 8.8%, and food prices rose 9.7%. Home prices rose at a 7.4% rate as mortgage lending continued to rise. Excluding gasoline, the CPI hit an all-time high of 6.3%. Every month, consumer prices rose 1.4%, beating consensus estimates for a 1% gain and recovering from 0.6% in April.

- UK: U.K. stock futures, which track the broader market, fell on Wednesday, with the benchmark FTSE 100 on track to snap a two-day winning streak amid ongoing concerns over the impact of soaring inflation and tighter monetary policy on the growth momentum. On the data front, UK inflation hit 9.1% in May 2022 from a year earlier, the highest level since 1982, as soaring food and energy prices continue to deepen the country's cost of living crisis.

- UK: In 2021, annual inflation in the UK rose to 9.1% from 9% in the previous month, the highest level since 1982, in line with market expectations. Accelerated Costs of Housing and Utilities (19.4% vs. 19.2%); Transportation (11.8% vs. 11.5%); Food and Non-Alcoholic Beverages (8.6% vs. 6.7%); Alcoholic Beverages and Tobacco (5% vs. 4.4%); Another In terms of price increases, restaurants and hotels saw smaller price increases (7.6% and 7.9%, respectively); entertainment and culture (5% vs. 5.9%); health (1.8% vs. 2.3%); clothing and footwear (7%, respectively) and 8.3%). Meanwhile, inflation remained steady in the education sector (4.5%), communications (2.8%), and miscellaneous goods and services (2.9%). On a monthly basis, consumer prices rose 0.7%, with the main upward pressure coming from food and non-food prices.

- UK: In May 2022, the ex-factory price of goods produced by UK manufacturers rose by 15.7% year-on-year, beating market expectations of 14.7% and hitting the highest producer inflation rate since June 1980. On a monthly basis, producer prices for output rose 1.6%, beating market expectations of 1.5%.

- SW: Sweden's unemployment rate fell from 9.8% a year earlier to 8.5% in May 2022, with the number of unemployed down 64,000 from a year earlier to 482,000. Meanwhile, employment rose by 123,000 to 5.18 million, and the employment rate rose to 68.7% from 67.2% last year. Seasonally adjusted, the unemployment rate was 7.7% in May.

- NZ: New Zealand's trade surplus narrowed to NZ$263 million in May 2022 from NZ$497 million a year earlier. Imports rose 24% year on year to NZ$6.7 billion, led by higher purchases of petroleum and products (+39%), machinery and equipment (+15%), and fertilizers (+355%). Imports increased from all major partners, namely China (25%); EU (12%); Australia (18%); US (5.5%) and Japan (41%). Meanwhile, exports rose 18% year-on-year to NZ$7 billion, driven by higher sales of meat and edible offal (up 27%), milk powder, butter and cheese (up 11%); fruit (up 11%) 23%), and crude oil (up 100%). Sales rose in almost all major destinations, namely Australia (49%), the US (18%), the EU (23%), and Japan (0.7%), but declined in China (3.8%) .

 

LOOKING AHEAD:   

Today, investors will receive:

- USD: Unemployment Claims, Current Account, Flash Manufacturing PMI, Flash Services PMI, Fed Chair Powell Testifies, Natural Gas Storage, and Bank Stress Test Results.

- EUR: French Flash Services PMI, French Flash Manufacturing PMI, German Flash Manufacturing PMI, German Flash Services PMI, ECB Economic Bulletin, Flash Manufacturing PMI, Flash Services PMI, and German Buba President Nagel Speaks.

- GBP: Public Sector Net Borrowing, Flash Manufacturing PMI, Flash Services PMI, and CBI Realized Sales.

- JPY: Flash Manufacturing PMI.

- AUD: Flash Manufacturing PMI and Flash Services PMI.

 

KEY EQUITY & BOND MARKET DRIVERS:

- US: U.S. stock futures contracts linked to major stock indexes fell about 1 percent on Wednesday, with investors not opening new positions ahead of Federal Reserve Chairman Jerome Powell's testimony to Congress later in the day. Investors are now looking for further clues on the central bank’s rate hike path amid concerns over rising inflation and interest rates against the backdrop of slowing global growth. In regular trading on Tuesday, the Dow rose 2.15%, the S&P 500 rose 2.45%, and the Nasdaq Composite rose 2.51%.

- GE: 

Germany's 10-year bond yield fell below 1.7% on June 16, hitting an 8-1/2-year high of 1.926%, as investors sought refuge in government bonds during the stock market sell-off. The Federal Reserve and other central banks have tightened monetary policy more aggressively to tame inflation, raising fears of slowing economic growth. European Central Bank President Christine Lagarde reiterated plans to raise interest rates twice this summer after the ECB announced new measures to ease market volatility, reviving fears of a recent debt crisis in the euro zone's southern periphery. Meanwhile, the spread between Italian and German 10-year bond yields widened by 2.5 to 205 basis points after Italian Foreign Minister Luigi Di Maio said he would withdraw from the Five Star Movement to form a new pro-government parliamentary group.

- IT: Italy's 10-year BTP yield fell back to 3.7% in late June as recession fears boosted demand for safer securities, while ECB policymakers said they would address fragmentation concerns in the central bank's policy implementation. With major central banks accelerating their tightening cycles, including a 25-basis-point rate hike by the European Central Bank in July, market concerns about a new round of debt crises have intensified, and the ECB's emphasis on preventing splits has eased the market's appetite for bonds from economically vulnerable member states. disgust. However, further calls for Italian bonds were muted after Foreign Minister Di Maio said he would withdraw from the Five Star Movement. Despite Di Maio's outspoken support for Prime Minister Draghi, his departure could jeopardize the prime minister's national unity. The spread between 10-year British and German bunds widened to 2.1 points after the news, reflecting a slight increase in the Italian debt risk premium.

 

 

 

STOCK MARKET SECTORS:

- High: Health Care, Utilities, Communication Services, Real Estate, Consumer Discretionary.

- Low: Energy, Materials, Industrial.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- USD: On Wednesday, the U.S. dollar index fell 0.5 percent to below 104, with investors betting that a recession in the U.S. economy was more likely in the coming years amid record-high inflation and a weak macroeconomic backdrop. Federal Reserve Chairman Powell said in semi-annual testimony to the Senate Banking Committee that the Federal Reserve will continue to raise interest rates to contain the sharpest inflation in nearly 30 years, as inflation unexpectedly rose in the past and future years. There may be more surprises. According to interest rate futures, the market expects the Fed funds rate to peak at around 3.6% in the middle of next year.

- CNY: The offshore yuan fell to around 6.72 to the dollar, erasing gains earlier in the week as China's central bank is expected to resume easing policy when other major economies are raising interest rates. Investors have also dumped riskier assets in favor of the U.S. dollar, fearing that a global monetary tightening could lead to a recession. Meanwhile, the People's Bank of China recently kept benchmark lending rates unchanged at 3.7% for one-year loans and 4.45% for five-year loans. Investors are now looking ahead to economic indicators for June to gauge the pace of the domestic economic recovery while awaiting clarity on future policy moves.

- NZD: The New Zealand dollar weakened by more than $0.63, falling to a two-year low last week as aggressive monetary tightening led to heightened global recession risks, dragging down commodity prices and related assets. Meanwhile, markets are betting that the Reserve Bank of New Zealand will more than double interest rates to 4.25% by the end of the year, implying a series of half-percentage-point hikes at the upcoming meeting. The Royal Bank of New Zealand raised the official cash rate by 50 basis points to 2% in May and said rates needed to be grown "more and more quickly." As a result, inflation took three 25 basis point hikes. As a result, in the first quarter of 2022, New Zealand's inflation rate reached 6.9%, well above the central bank's 1%-3% target range.

- AUD: The Australian dollar fell to around $0.69, slumping to a two-year low in May, as the risk of a global recession increased due to aggressive monetary tightening, dragging down commodity prices and related assets. Meanwhile, higher domestic yields supported the Aussie, with Australia's benchmark 10-year yield hovering near an eight-year high of around 4%. The Reserve Bank of Australia surprised markets by announcing at its June meeting that it would raise interest rates by 50 basis points to 0.85%, citing rising consumer prices and economic recovery and pledging to "take necessary measures" to curb inflation soaring. RBA governor Philip Lowe recently said further tightening would be expected as interest rates remain "very low," and he expects inflation to hit 7 percent by the end of the year. Still, he has underestimated the possibility of a massive 75 basis point hike.

- JPY: The yen weakened by more than 136 yuan against the dollar, falling further to its lowest level since 1998 as the Bank of Japan stuck to its low-yield, the stimulative policy as other major central banks raised interest rates. The central bank also resisted market pressure on the yen and government bonds following speculation by mainly foreign investors that the central bank might adjust its current yield control policy. As widely expected, the Bank of Japan kept its key short-term interest rate unchanged at -0.1% and the 10-year bond yield around 0% at its June meeting. The Fed committee also said it would propose unlimited bond purchases to defend the implied 0.25% daily cap and repeat market-operating guidelines it set in April. Meanwhile, the Bank of Japan recently made a rare reference to money markets, saying it needed to be concerned about its impact on the economy and markets.

- US: The U.S. dollar index rose above 104.5 on Wednesday, recouping some losses from previous sessions and edging closer to a 20-year high reached last week, as expectations that the Federal Reserve will continue to tighten monetary policy underpinned the greenback aggressively. Last week, the U.S. central bank raised its benchmark interest rate by 75 basis points, the most significant increase since 1994, to control inflation. Investors are now awaiting Federal Reserve Chairman Jerome Powell's appearances in Congress on Wednesday and Thursday for fresh insights into the central bank's future policy plans. Analysts expect the Fed to raise rates by another 75 basis points in July and then by 50 basis points in September. The dollar also benefited from safe-haven inflows sparked by fears of a global economic slowdown.

 

CHART OF THE DAY:

Sterling fell below $1.22, close to a two-year low below $1.20 hit on June 14, after the latest CPI report showed inflation rising to a 40-year high, putting more pressure on the Bank of England despite recession risks. UK consumer prices rose 9.1% in May from a year earlier, the highest level since 1982, as soaring food and energy prices continue exacerbating the country's cost of living crisis. The Bank of England has raised rates five times since it became the first major central bank to raise rates in the wake of the Covid-19 pandemic in December and is currently at 1.25%. Meanwhile, recession fears remain widespread, with the UK economy shrinking by 0.3% in April and 0.1% in March.

-  GBPUSD - D1, Resistance (consolidation) around ~ 1.26863, Support (target zone) around  ~ 1.20632

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