Equities

Stocks remain sluggish on the week

Eurostoxx -0.7 percent, Germany DAX -0.6 percent, UK FTSE -0.6 percent, France CAC 40 -0.6 percent & Spain IBEX -0.4 percent.

This follows yesterday’s drop as sentiment remains sluggish, with Wall Street also retreating. For the time being, US futures are more tepid, with S& P 500 futures flat, but the overall mood isn’t indicating much so far today.

All eyes are on the ECB, and market action may be limited until then. However, European bond yields are rising, with 10-year German bund yields reaching new highs since 2014, reaching 1.37 percent.

Dollar

• The greenback and the yen have been the two best performers on the day so far.
• USD/JPY has fallen to a low of 133.50 on the day, with 10-year Treasury yields falling 1.5 basis points to 3.014 percent from around 3.03 percent earlier in the day.
• 10-year German bund yields briefly reached new highs since 2014, reaching 1.37 percent before falling to 1.34 percent now
• Elsewhere, the GBP/USD is down and on the verge of another test of 1.2500, though stronger daily support is seen closer to 1.2458-71. If the downside continues, the week’s low at 1.2430 will be an important point to monitor.
• In the meantime, the EUR/USD is down slightly from 1.0725 to 1.0710, but price action remains in a bit of a consolidation phase as we await more ECB clues later today.
• The 0.7140-55 support area is a key short-term area to watch to see if buyers can stay in the game.

US futures

S&P 500 futures have pulled higher to be up 0.4 percent on the day, with Nasdaq futures up 0.5 percent and Dow futures up 0.3 percent.

Meanwhile, European equities have pared some losses on the day, with the Eurostoxx down 0.2 percent, DAX down 0.4 percent, UK FTSE down 0.4 percent, and CAC 40 down 0.1 percent at the moment.

In the larger picture, a break of this consolidation phase in the S&P 500 is critical for determining the next key directional move in stocks:

ECB policy meeting

ECB announces their latest monetary policy decision – 9 June 2022

ECB leaves key rates unchanged in June monetary policy meeting, as expected

Prior decision

• Deposit facility rate -0.50%

• Main refinancing rate 0.00%

• Marginal lending facility 0.250%

• APP purchases will end on July 1;

• The Fed intends to raise key interest rates by 25 basis points at its July meeting;

• Looking ahead, the ECB expects to raise interest rates again in September.

• Will maintain optionality, data dependence, gradualism, and flexibility
• Inflation expected to be 6.8 percent in 2022, 3.5 percent in 2023, and 2.1 percent in 2024

GDP growth expected to be 2.8 percent in 2022, 2.1 percent in 2023, and 2.1 percent in 2024

The euro experienced a bit of a whipsaw, rising to 1.0748 before falling back to 1.0688, and is now hovering around 1.0700 against the dollar. The key passage is that the ECB “intends” to raise rates by 25 basis points in July, but they leave open the possibility of a 50 basis point hike in September.

The statement on the latter reads: ” “Looking ahead, the Governing Council expects the key ECB interest rates to be raised again in September. The timing of this rate hike will be determined by the latest medium-term inflation forecast.

If the medium-term inflation outlook remains unchanged or worsens, a larger increase will be warranted at the September meeting.”

That will be determined by inflation data in the coming months, but for now, the euro is being tossed around a little as the hawkish bets (even if they were small to begin with) coming into the meeting are postponed – at least until July.

Aside from that, the ECB raises its inflation forecasts while decreasing its growth forecasts, as expected. Lagarde will speak next at 12:30 p.m. GMT.

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