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Sentiment is Better, News is Not

The market sentiment is better, but the news is not. The latest flash PMI readings from Japan to Europe and to the US showed a slowing global activity in June. Almost all regions missed the analyst expectations. High energy prices, the Ukraine war and the pandemic disruptions, the tighter monetary policies and the rising borrowing costs are weighing on the global economic activity, and we now start seeing it through the PMI figures.

The slowing activity, and the major call for a global recession started pressuring oil and commodity prices to the downside. The barrel of US crude trades a touch above the $106pb at the time of writing. Oil bears get ready to test the $100pb support for a deeper medium-term correction, and iShares diversified commodity index is down by 12% since the June 8 peak.

Tightening tightening tightening

Norway delivered a bigger than expected 50bp hike, and Banxico rose by 75bp hike, the country’s biggest rate hike ever, and said it will continue doing so if conditions require.

Only the eccentric Turkey kept it policy rate at 14%.

From bad to worse

Moscow cuts the gas supply to Germany via Nord Stream 1, leading to another spike in the European natural gas futures. Germany warned that cutting Germany’s energy supplies would spark a collapse in energy markets, comparing itself to Lehman Brothers which fell and triggered the terrible subprime crisis back in 2007/2008.

The higher gas prices should keep the pressure high for oil, as although the prospects of demand are being cut, the production remains limited to the refining capacity.

A calm session ahead?

European and US futures hint at a hopefully calm session before the weekly closing bell. We don’t have much on today’s economic calendar besides the University of Michigan’s sentiment index, which we know will look morose. But other than that, we will probably wrap up the week with Powell’s warning that the US economy will certainly not have a soft landing as a result of the Federal Reserve’s (Fed) aggressive fight against inflation.

In the FX, the US dollar hasn’t recorded a fresh high since about ten days, and the prospects of slowing US growth, the rising probability of recession and the increasingly hawkish policy stance from other major central banks should prevent the greenback from gaining a fresh positive momentum.

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