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15/06/22 Briefing


Day Ahead

US (20:00 CET) FOMC rate expected to increase by 0.5% to 1.25% lower bound and 1.5% upper bound

Market News

The ECB will hold an unscheduled meeting today to discuss market conditions. The euro rallied and Italian bonds surged, with the yield on the 10-year sovereign falling as much as 30 basis points.

European stocks and US futures rose ahead of the central bank action. Treasuries also recovered from one of the worst selloffs in four decades. Most Asian stocks sagged, but Chinese shares gained after the PBOC rolled over 200 billion yuan ($29.8 billion) of maturing loans and May output and retail sales beat consensus. Oil fluctuated and gold advanced, while the dollar slipped.

Market ructions aren't over, but that's no reason not to buy the dip, said Avenue Capital CEO Marc Lasry. He sees more pain through the year-end, but investors shouldn't try to time the bottom. "Get invested when you can." Benjamin Dunn at Alpha Theory said investors are fleeing bonds in favor of cash because they fear officials can't cap prices "without completely breaking the bond market." Stephen Miller said 10-year yields are heading above 4%.

Over at the ECB, Isabel Schnabel said any response to bond-market panic will depend on the circumstances. With backstops in place, the risk of fragmentation - unwarranted increases in the bond yields of indebted euro-area members - has decreased. The BOE should prepare to end rate hikes before a likely recession early next year, according to veteran UK monetarist Tim Congdon. He reckons the bank should go only "a little" above 1%.

War: Antony Blinken said it's up to Ukraine to decide territorial concessions. Ukraine suffered $4.3 billion in damage to farmland, machinery and livestock, the Kyiv School of Economics said. Russian opposition leader Alexey Navalny was transferred to a maximum-security prison in Melekhovo east of Moscow, Tass reported. Russia's detention of Brittney Griner, the US basketball star and Olympian, was extended until July 2.

Deutsche Bank slapped one of the steepest discounts seen on a junk-bond sale in years. The $400 million debt for the buyout of packaging firm Intertape Polymer is being offered at as little as 83 cents on the dollar, a person familiar said. That equates to a yield of around 14% and is higher than the initial target of 12%.

SoftBank plans to list some of its stake in Arm in London, after an earlier plan to only tap the US market, people familiar said. Crypto lender Celsius Network hired a law firm to explore restructuring options, WSJ reported. Companies including Ford and Bombardier are taking advantage of market panic to lower their debt leverage ratios by buying back securities. Goldman is creating a tool to help manage currency volatility. The bank will offer foreign-exchange prices that last for days to help fintechs, airlines and e-commerce firms hedge risk and protect them from having to do hundreds of transactions at different rates. Clients can expect to pay a premium, in the form of an added spread, to reflect the risk that exchange rates move against Goldman's position.

The European stock market's breadth - the number of shares participating in the latest drop - has yet to see signs of panic selling, especially compared with the last two dips in 2020 and March 2022. If the rout is starting to look like it's gone too far, with the Stoxx 600's RSI dipping below the level of 30 points, the market breadth for the benchmark doesn't suggest a broad and powerful selloff is underway.

Economic Outlook

Consensus is building for the FOMC to hike by 75 bps - the steepest tightening since 1994. Bill Ackman said the Fed could help restore market confidence if it raises rates by 75 bps today and in July - but 100 bps would be better. Bloomberg Economics is looking for 75 bps and said Jerome Powell may signal more of the same in July, but the dot plot might not reflect it as projections were submitted a while back. Oh, and Jeffrey Gundlach urged the Fed to take rates to 3% in one go.

Overview

FTSE 100 - 7,216.25 (0.3999%) DJ - 30,364.83 (-0.4978%) S&P500 - 3,735.48 (-0.3774%) Nasdaq - 10,828.35 (0.1769%) EStoxx50 - 3,504.91 (0.8518%) HSI - 21,285.46 (1.0191%) Nikkei - 26,326.16 (-1.1404%)

Currencies

GBPUSD - 1.2034 (0.3334%) GBPEUR - 1.1491 (0.2001%) EURUSD - 1.0472 (0.5376%) EURCHF - 1.0455 (-0.198%) USDCAD - 1.2966 (-0.108%) EURAUD - 1.5156 (0.0271%) EURSEK - 10.6154 (0.0754%) EURNOK - 10.4518 (-0.1474%)

Commodities

GOLD - 1,820.89 (0.7127%) SILVER - 21.3763 (1.5787%) COPPER - 419.15 (0.3592%) PALLADIUM - 1,829.23 (0.5911%) CRUDE - 118.83 (-0.1093%) BRENT - 121.14 (-0.0413%)

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The S&P 500 futures are up 3 points and are trading % above fair value. The Nasdaq 100 futures are up 9 points and are trading roughly in-line with fair value. The Dow Jones Industrial Average futures