US EARLY MORNING: Index futures slide amid continued concerns about growth and inflation; Fed Chair Powell's due to speak later today

MARKETS SNAPSHOT: US equity futures are lower. YM -1.6%, ES -1.9%, RTY -2.0%, NQ -2.2%. US Treasuries are rallying by 4-9bps, with much of the rally in the long end, while major curve spreads are mixed. Global risk sentiment has soured once again, and while there is not a specific headline catalyst, concerns continue to centre around the rising rate environment to contain surging consumer prices and the negative impact that this will have on growth. Many trading desks have noted that selling bounces in risk sentiment has proven a profitable strategy, with this dynamic only likely to fade once there is more confidence that inflation has peaked out and policymakers can pivot back towards more growth-friendly policies. Crude oil is sliding­, and again, there is no single headline catalyst; analysts are pointing to the negative risk mood and concerns around the demand side given expectations of the growth slowdown. President Biden is reportedly mulling a suspension of the federal gasoline tax, but some analysts have mocked the idea given it is only likely to support demand at a time when supply is constrained.

POWELL AHEAD: Fed Chair Powell will begin his dual semi-annual testimonies to lawmakers today. These events often take a more political angle, and the Chair will have to reconcile how the Fed is able to contain surging consumer prices without dragging the economy into a recession. Officials downgraded their growth view for this year, but Powell and Co. still believe that they can engineer a ‘soft landing,’ although external influences may make this more challenging. This view is being subject to increasing scepticism, with major banks all warning that US recession risks were increasing as the Fed focuses more on managing price pressures. And this is reflected in a small statement tweak where the Fed removed language that “with appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2% objective and the labour market to remain strong,” replacing it with “the Committee is strongly committed to returning inflation to its 2% objective.” Some Fedwatchers, like SGH Macro’s Tim Duy, have argued that this is an acknowledgement that both sides of the Fed’s mandate (of pursuing maximum employment and price stability) are no longer possible in the near term. The Fed raised the Federal Funds Rate target by 75bps last week, and it is clear from the economic projections that policymakers think rates will need to be lifted above the neutral interest rate (estimated to be around 2.5%) and into restrictive territory. Traders will also be looking for any hints on the size of the July rate rise. The updated forecasts see rates rising to 3.25-3.50% by the end of this year, implying the possibility of a 75bps hike in July, followed by a 50bps hike in September, and then 25bps at its November and December meetings; however, it could also be interpreted as three 50bps rate rises followed by a 25bps move; Powell is likely to suggest that incoming data on inflation will guide officials in July. That said, some are already tilting towards the latter scenario after Chair Powell said he did not expect moves of 75bps to be common, but either 50bps or 75bps in July would seem most likely. Analysts at Barclays, who were the first major bank to call for a 75bps rate rise in June, noted that the increment was a strong move from the central bank, calling it a “statement hike,” but believes the FOMC will move to a 50bps rate rise at the July meeting given the challenging conditions the economy is seeing, particularly within the housing sector. (Our full recap of the June FOMC meeting and Chair Powell’s post-meeting press conference can be accessed here).

DAY AHEAD: Other than the Fed Chair, Fed's Barkin, Evans, Harker will give remarks. On the data front, EU flash consumer confidence for June and Canadian CPI data for April are on the slate. After hours, the API will release its gauge of energy inventories. On the supply front, German 2038 debt and a US 20yr will be sold. Full Day Ahead here.

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22 Jun 2022 - 09:39- EnergyData- Source: Newsquawk

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