Written Commentary
- Heavily front loaded schedule has RBA rate hike, UK PM confidence vote and BRC Retail Sales, German Orders to digest; UK Services PMI, US and Canada Trade, EIA Short Term Energy Outlook and ECB speakers ahead; UK, German and US bond auctions
- Aggressive RBA rate hike a reminder that the path to ‘neutral’ rates will be rapid, and risk markets’ growth and inflation premature
- UK BRC Retail Sales: cost of living squeeze very evident, but also swing from goods to services
- Germany Factory Orders: energy price and Ukraine War continue to take their toll; intermediate goods imply supply chain woes easing
EVENTS PREVIEW
In news terms, today’s schedule is heavily front loaded, being a case of digesting UK PM Johnson’s surviving yesterday’s confidence vote (for now), a sharper than expected 50 bps RBA rate hike and a larger than expected fall in German Factory Orders. Ahead lie the final UK Services PMI and US and Canadian Trade, with a number of ECB speakers, the US EIA’s monthly Short Term Energy Outlook, an expected 75 bps rate hike in Chile, along with 3-yr auctions in the UK and USA, and a modest EUR 700 Mln of German inflation-linked Bunds. Markets remain very volatile, still underpinned by the extant volume of ‘largesse to excess’ QE and some renewed optimism (or rather less pessimism) about the growth outlook, but constantly unsettled by inflation, even if living in hope that the peak has passed in major economies, though the pace of retreat from current high levels looks likely to be slow.
The unexpectedly aggressive 50 bps RBA rate hike, with a clear signal of more to come serves as a reminder that the move to ‘neutral’ in many countries will be rapid, and while uncoordinated, the pace of monetary tightening may prove to be rather more unsettling for markets than the ‘relief’ rally in riskier assets after the April/May sell-off implies. In terms of the overnight data, the fall in UK BRC Retail Sales and the inflation and base effect driven rise in Barclaycard Consumer Spending highlight on the one hand the cost of living squeeze with spending on essentials rising, but falling on discretionary items such as digial content and subscriptions (-6.0% y/y BRC). On the other hand spending on travel rose sharply, even if heavily flattered by base effects, suggesting a continued swing back from goods to services spending. German Factory Orders were a good deal weaker than expected at -2.7% m/m, following falls of -4.2% and -1.3% in preceding months, with particular weakness in foreign orders (Eurozone -5.6% m/m, Non-Eurozone -3.0%), Capital (-4.3% m/m) and Consumer (-2.6% m/m) Goods, underlining combined impact of the Ukraine war and skyrocketing energy prices; the modest 0.3% m/m fall in Intermediate Goods suggest that supply chain headwinds are easing.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
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