US EARLY MORNING: US equity futures higher as ECB holds emergency meeting on market conditions

US equity futures are trading higher ahead of the FOMC’s June meeting, where it could easily raise rates by 75bps. RTY +0.9%, NQ +0.8%, ES +0.7%, YM +0.6%. Gains were erased as European traders began arriving, but futures moved back into the green on news that the ECB was holding an emergency meeting to discuss market conditions, which has supported risk sentiment, as peripheral debt spreads in the bloc narrowed on the assumption the central bank would take action to mitigate surging yields, which apparently threatens the transmission of monetary policy. Subsequent reports have suggested that it will discuss reinvesting the proceeds from maturing PEPP holdings, though analysts note that this would not necessarily mark a shift from current policy, given that its policy statement already states that in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions. Sources have said the ECB’s meeting will begin at 10am London time (05:00EDT/11:00CEST), though it is unclear if a statement will be released after the meeting has concluded. The potential ECB headline risk is likely to steal the central banking limelight ahead of the FOMC meeting later today. Focussing on the latter, reports this week have strongly guided market participants towards a 75bps rate rise, rather than the 50bps that officials were flagging going into the quiet period. There will also be a lot of attention on updated projections: in addition to the number of hikes (and increments) seen in the months ahead, traders will note the central bank’s perception of the terminal and neutral rates; the market will then assess the GDP growth and inflation forecasts for signs of how soon the central bank sees inflation peaking, and the impact that this is likely to have on growth, and whether the Fed’s course of aggressive monetary tightening will drag the US economy into a recession. As a proxy, recent institutional forecasts have been revising down the growth profile and revising up expectations of inflation. Our full Fed preview can be accessed here. Full Day Ahead calendar can be accessed here.

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15 Jun 2022 - 09:32- Data- Source: Newsquawk

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