Tuesday in Consolidation Regime After Monday's Slamdown
14 June 2022
It looks like Tuesday could be a quiet day as the markets are trying to consolidate following yesterday's massive derisking in every asset.
The US yields absolutely exploded higher on Monday, sending the 10-year to 3.4%, with the 2*-year yield rising above 3.3%, both hitting the highest levels since 2014. At the same time, the USD strengthened notably, pushing to new cycle highs as the dollar index jumped above 105 for the first time since 2002.
On the other hand, US equity indices fell 4%, undermined by soaring yields and recession fears. As a result, all significant equity benchmarks dropped to new cycle lows, confirming the bearish bias.
Following the recent inflation figures, some investment banks speculated that the Fed would opt for a surprise 75 basis point (bps) rate hike at this week's meeting. JP Morgan and Goldman Sachs economists updated their projections and now expect the Fed to raise its rate by 75 basis points on Wednesday.
Finally, according to the CME Group FedWatch Tool, markets are putting in a 98% chance of a 75 basis point rate increase this week, up from only 4% last week.
Earlier today, Consumer prices in Germany grew 0.9% month over month in May, following a jump of 0.8% the previous month. However, the annual rate increased to 7.9% from 7.4% in April, indicating that the ECB has failed miserably in controlling inflation.
Later in the session, data on Eurozone industrial production for April is due, as is Germany's ZEW economic confidence index for June.
During the US session, the US PPI inflation indices are on schedule. However, after an 11% increase in April, PPI inflation is forecast to slow slightly to 10.9% annually. Meanwhile, core producer prices grew 8.8% year over year in April, down from a series high of 9.6% in March.