Euro remains at (just) above $1
The Euro remains trading below $1.01 to the dollar, and while it has not yet breached parity – bouncing slightly off €1:$1 yesterday -, it remains under pressure with the momentum remaining on the side of the dollar. The single currency ebbed and flowed against sterling yesterday but it continues to trade in the 84p range
Continued fears of a recession sometime in the coming year (on either or both sides of the Atlantic) is seeing bonds gain, with 10 year US yields down another few bps to around 2.9% again and German yields dipping over 10bps to close to 1.1% now. Research published by the Fed yesterday indicate that the expected (interest rate) tightening path and projected downward path of inflation have increased the probability of a US recession in the next 12 months to 35%, while a faster hiking of rates than compared to the current baseline increases the chance to 60%
Oil prices fell back yesterday as those recession fears are trumping geopolitical risk somewhat. A barrel of Brent for delivery in 3 months fell about 9% to about $10o, and down from over $120 a month ago
More weak data in German and the US. The ZEW survey of investor expectations in Germany fell to -53.8 in July from -28 in June, well below the consensus forecast. ZEW said concerns about the energy supply in Germany, the coming ECB hiking cycle and COVID-19 disruptions in China were some of the reasons behind the lower reading this month, the worse since 2011. In the US, the NFIB small business optimism index fell to 89.5 in June from 93.1 in June. Again this is weaker than expectations, with all 10 sub-components of the index dipping last month taking it to the lowest level since 2013
UK GDP is estimated to have grown by 0.5% month-on-month in May, following a 0.2% fall in April, and this is somewhat better than expected. All sectors – manufacturing, services and construction – contributed to growth, with services getting a sizable boost from an out performance in the health sector. Activity in the UK is still likely to contract in Q2 overall, but this is a welcome upside surprise.
Data due this week include Euro Area industrial production, US inflation and later on this evening the Fed Beige Book