Markets
After yesterday’s euphoria, markets returned to a guarded wait-and-see modus as the drivers for yesterday’s risk rebound still have to be validated. Even in case of a reopening of the Nord Stream 1 pipeline as scheduled, the amount of Russian gas deliveries remains highly uncertain. EU’s von der Leyen today still saw a full cut of Russian gas as likely. In addition, even with gas supply returning to ‘more comfortable’ levels, worries on European growth don’t disappear at once. In Italy, PM Draghi in its address before the Senate indicated he remains available to rebuild the government of national unity. For now it is still highly uncertain he will regain confidence of the major groups in Parliament he deems necessary to further execute the reform agenda. A vote is expected later this evening. The Italian 10-y spread vs Germany after Draghi’s speech narrowed 10+ bps, but now again trades 7 bps wider. Last but not least, validation on bold ECB action both with respect to restoring its anti-inflation credibility and on a credible anti-fragmentation tool will only come at tomorrow’s policy meeting. Yesterday’s ‘hints’ from familiar sources at least made it easier for the ECB to frontload policy normalization with a 50 bps hike without sparking too much upheaval on European interest rate markets. Still, the outcome remains highly binary in nature. Clear communication on the functioning of the new anti-fragmentation tool, probably is at least as important as the actual 25 or 50 bps hike. European interest rates reverse part of yesterday’s leap higher. German yields decline 3/5 bps across the curve. US yields also ease between 4/6 bps as the Fed reined in expectations for a 1.0% hike. European equities initially tried to extend yesterday rebound, but momentum dwindled. The EuroStoxx50 eases 0.6%. US indices are opening little changed/mixed.
On FX markets, the headlines of EU’s von der Leyen on persistent uncertainty with respect to Russian gas deliveries pushed EUR/USD (temporarily) to the 1.0175 area, but in volatile trading the pair soon rebounded back to the 1.023 area. The dollar failed to regain the 107 level in a sustainable way (106.75). The risk-off sentiment keeps the dollar and the yen in balance (USD/JPY 108.05). Sterling remains in the defensive even as June inflation printed at a 40-year high (9.4%), supporting the case for a 50 bps BoE rate hike. At 0.8525, EUR/GBP retains recent gains.
News Headlines
Belgian consumers turned less optimistic again in July. The indicator fell from -11 to -13, erasing part of a three-month rise to be back at levels seen in May. This month’s decline is mainly attributable to a deterioration of the outlook for the general economic situation. Despite this, household’s assessment of their personal financial situation improved slightly from -8 to -7. Still it is the lowest since 1995 excluding the shock impact of Russia’s invasion earlier this year. Expectations for unemployment remained steady (12). Belgian consumers do foresee to save less in the coming year. Barring the month May, expectations to save eased to the lowest since early 2020.
Polish employment in June grew an expected 0.1% m/m to be up 2.2% Y/Y. Average gross wage growth rebounded from a decline in May to be up 2.4% m/m and 13% y/y. That fell a bit short of 2.8% and 13.3% expectations. Statistics Poland attributed the rise to payments of quarterly and yearly bonuses and retirement severance pays. It is also the result of a strong, tight labour market that has been increasingly fueling (domestic) inflation. Signs of price pressure easing are scarce still. Producer price inflation in June accelerated to a new 27-y high of 25.6% y/y (1.6% m/m). Persistent inflation and the war in Ukraine has weighed severely on consumer confidence. After falling to an all-time low in June (-43.8), confidence barely recovered in July (-41.7). Polish consumers assessed their personal finances to be only marginally better than the low seen last month while thinking that the economic situation was even worse than in June (new all-time low for the subseries). The situation 12 months ahead was judged almost as equally as bad as in June. The zloty traded volatile after the mixed bag of data was published all at once. The currency is underperforming regional peers nevertheless. EUR/PLN is currently trading at 4.77, up from 4.75.
