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Fed Governor Michelle Bowman said in a speech she expects to "support additional rate increases until we see significant progress toward bringing inflation down".

Based on current inflation readings, she expects that "an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings"

Full speech here.

Bundesbank President Joachim Nagel said: "The risk of inflation expectations becoming de-anchored has risen over the past months. Risks to price stability exist."

"Inflation expectations of households and firms in Germany are somewhat less anchored than, say, a year ago," he said. "The increase is worrying."

"If monetary policy falls behind the curve, even stronger hikes in interest rates could become necessary to get inflation under control," Nagel warned. "This would create much higher economic costs."

It's been a rather choppy week in financial markets and we're seeing that reflected again on Thursday, with European stocks back in negative territory after recovering losses earlier.

Equity markets have fallen heavily over the last couple of weeks as aggressive tightening and heightened recession fears weigh heavily on risk appetite. They may now be establishing a temporary bottom as yields ease off their highs but don't get too excited. The outlook is highly uncertain, and economic risks are heavily tilted to the downside, making any significant stock market recovery challenging.

Slowly but surely, central banks are coming around to the idea that recessions may be the price to pay for price stability. Some are better placed than others to weather the storm but even they may ultimately get swept up in it eventually.

That came across during Jerome Powell's appearance in front of the Senate Banking Committee on Wednesday. Referring to a recession as "certainly a possibility", the Fed Chair appears to be edging towards waving the white flag on the economy, following in the footsteps of his peers here in the UK.

Perhaps that's why we're seeing yields easing over the last week. A recession is obviously not the desired outcome but it could in theory mean interest rates not rising as much. Still not a good reason for stock markets to undergo any significant recovery though. The outlook is uncertain at best until the inflation data shows signs of improving.

CBRT continues to turn a blind eye

The CBRT kept interest rates unchanged at 14% today. This section is going to be quite short as there's nothing new to add on the Turkish central bank. It remains committed to its monetary policy experiment despite 73.5% inflation and a plunging lira. The fact that it's undertaking such an experiment at arguably the worst moment in decades as other central banks scramble to hike rates and rein in what they consider to be sky-high single-digit inflation makes the stubbornness of the CBRT all the more ridiculous.

Are oil traders buying the dip?

Oil prices have recovered earlier losses to trade modestly higher on the day. It's been quite the correction in oil with all the talk of recession proving to be the counterforce to a tight market. Let's not get carried away though, we're still in triple figures and I don't see a strong case for the price to retreat too far. That's naturally dependent on how serious the threat of recession becomes but right now, price risks remain tilted to the upside. Today's recovery may even be a sign of traders flooding back in to buy what has been a decent dip in a very short period of time.

Worst yet to come?

Bitcoin continues to hang on in there around $20,000 but it's far from convincing. There still doesn't appear to be an enormous amount of appetite at these levels and while it has shown some resilience, I'm not convinced it can hang on. There's plenty of support below though but it may just be the case that it's going to get worse before it gets better.

Markets brace for soft retail sales

It continues to be a quiet week for the British pound. That could change on Friday, with the markets bracing for more bad news from retail sales data for May. Headline retail sales is expected at -4.5%, after an April reading of -.4.9%. Core retail sales are expected to decline by 5.1%, following a -6.1% reading in April.

Weak retail sales numbers should not come as a surprise, with UK consumers hammered by surging inflation and grappling with a worsening cost of living crisis. There was no relief (not that any was expected) from yesterday’s inflation report. Headline CPI rose to 9.1% in May, a notch higher than the 9.0% reading in April. Inflation expectations are moving higher, and this week’s major rail strike reflects the deep discontent amongst workers who are watching prices soar. The Bank of England isn’t inspiring much confidence, as its recent 0.25% rate hike was a tepid move. The BoE has projected that inflation won’t peak until it tops 11% later this year, which will be cold comfort for UK households.

In the US, the Federal Reserve is also in a tough fight with high inflation and delivered a massive 0.75% hike last week in order to slow down inflation.  Fed Chair Powell testified before a Senate committee yesterday and will brief a congressional committee later today. Powell was transparent in his remarks, acknowledging that a recession was “certainly a possibility”, adding that a soft landing would be “very challenging”. Powell mentioned the usual suspects beyond the Fed’s control, namely, high commodity prices, supply chain issues and the Ukraine war. The Fed will have to make some tough decisions regarding future rate hikes, such as whether to deliver further 0.75% hikes, which will help curb inflation but could tip the economy into a recession.

GBP/USD Technical

• 1.2187 is providing support, followed by 1.1969
•  There is resistance at 1.2283 and 1.2441

The Aussie dollar holds in red for the second consecutive day, following a double-rejection under psychological 0.70 barrier and came under increased pressure on downbeat economic data.

Australia’s composite PMI which tracks the activity in manufacturing and services sectors, fell to 52.6 in June from 52.9 in May, raising fears about economic growth slowdown.

Fresh weakness pressures June low at 0.6850 and more significant May’s low at 0.6828 (the lowest since June 2020), with break here to signal an end of six-week corrective phase and continuation of larger downtrend.

Daily MA’s are in full negative configuration, bearish momentum remains strong and RSI is heading south, while weekly studies are also bearish that keeps the downside at risk, along with negative fundamentals highlighted by soaring inflation and recession fears.

Falling 10DMA marks solid resistance at 0.6955, with near-term bias to stay with bears while the price action stays below 0.70 barrier.

Res: 0.6923; 0.6955; 0.7000; 0.7055
Sup: 0.6869; 0.6850; 0.6828; 0.6798

Daily Pivots: (S1) 1.0491; (P) 1.0548 (R1) 1.0627; More...

Intraday bias in EUR/USD remains neutral as range trading continues. Further fall is in favor with 1.0786 resistance intact. On the downside, sustained break of 1.0339/48 will resume larger down trend. Next target is long term projection level at 1.0090.

In the bigger picture, focus stays on 1.0339 long term support (2017 low). Decisive break there will resume whole down trend from 1.6039 (2008 high). Next target is 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. However, firm break of 1.0805 support turned resistance will delay this bearish case, and bring stronger rebound first.

Daily Pivots: (S1) 1.2177; (P) 1.2246; (R1) 1.2331; More...

Range trading continues in GBP/USD and intraday bias remains neutral. Outlook stays bearish as long as 1.2666 resistance holds. On the downside, break of 1.1932 will resume larger down trend from 1.4248. However, firm break of 1.2666 will suggest medium term bottoming and bring stronger rebound back towards 1.3158 support turned resistance.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.3175).

Daily Pivots: (S1) 0.9567; (P) 0.9629; (R1) 0.9676; More...

No change in USD/CHF's outlook. Deeper decline could be seen. But fall from 1.0048 is viewed as the third leg of the corrective pattern from 1.0063. Strong support should be seen at around 0.9543 to contain downside to bring rebound. On the upside, above 0.9731 minor resistance will turn bias back to the upside for retesting 1.0063 resistance. However, break of 0.9543 will bring deeper fall back to 0.9459 resistance turned support.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

Daily Pivots: (S1) 135.71; (P) 136.21; (R1) 136.74; More...

Intraday bias in USD/JPY remains neutral at this point. Some consolidations could be seen below 136.70. But downside should be contained above 131.48 support to bring rebound. On the upside, break of 61.8% projection of 114.40 to 131.34 from 126.35 at 136.81 will target 100% projection at 143.29.

In the bigger picture, current rally is seen as part of the long term up trend from 75.56 (2011 low). Next target is 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is close to 147.68 (1998 high). This will remain the favored case as long as 126.35 support holds.

Euro falls broadly today after worse than expectation PMI data. Aussie and Loonie are also weak as commodity prices pull back. On the other hand, Yen and Swiss Franc are rebounding, following the rather deep pull back in US and European benchmark yields. Stock markets are mixed with European indexes trading in red, but US markets open slightly higher.

Technically, EUR/JPY's break of 141.93 minor support suggest rejection by 144.23 resistance, and deeper retreat could be seen. Similarly, USD/JPY and GBP/JPY could also head lower for the near term,, if treasury yields extend pull back. But for now, there is no clear sign of trend reversal, and Yen crosses should resume rally sooner rather than later.

In Europe, at the time of writing, FTSE is down -0.45%. DAX is down -1.16%. CAC is down -0.25%. Germany 10-year yield is down -0.205 at 1.435. Earlier in Asia, Nikkei rose 0.08%. Hong Kong HSI rose 1.26%. China Shanghai SSE rose 1.62%. Singapore Strait Times dropped -0.02%. Japan 10-year JGB yield dropped -0.0053 to 0.236.

US initial jobless claims dropped slightly to 229k

US initial jobless claims dropped -2k to 229k in the week ending June 18, matched expectations. Four-week moving average of initial claims rose 4.5k to 223.5k.

Continuing claims rose 5k to 1315k in the week ending June 11. Four-week moving average of continuing claims dropped -7k to 1310k, lowest since January 3, 1970.

UK PMI composite unchanged at 53.1, troubling combination of recession and inflation into H2

UK PMI Manufacturing dropped from 54.6 to 53.4 in June, below expectation of 53.8. That's the lowest level in 23 months. PMI Services was unchanged at 53.4, above expectation of 53.0. PMI Composite was unchanged at 53.1.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter. While there are some signs that the inflation could soon peak, the survey data suggest the rate of inflation will meanwhile remain historically high for some time to come, indicating that the UK looks set for a troubling combination of recession and elevated inflation as we move into the second half of the year."

Eurozone PMI composite dropped to 16-mth low, just 0.2% GDP growth and worse to come

Eurozone PMI Manufacturing dropped from 54.6 to 52.0 in June, below expectation of 53.0. That's the lowest level in 22 months. PMI Services dropped from 56.1 to 52.8, below expectation of 55.5, a 5-month low. PMI Composite dropped from 54.8 to 51.9, lowest in 16-months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "Eurozone economic growth is showing signs of faltering ... Excluding pandemic lockdown months, June's slowdown was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008.... The slowdown means the latest data signal a rate of GDP growth of just 0.2% at the end of the second quarter, down sharply from 0.6% at the end of the first quarter, with worse likely to come in the second half of the year."

France PMI Manufacturing dropped sharply from 54.6 to 51.0 in June, well below expectation of 53.8. That's the lowest level in 19 months. PMI Services dropped from 58.3 to 54.4, below expectation of 57.5, lowest in 5 months. PMI Composite dropped from 57.0 to 52.8, also a 5-month low.

Germany PMI Manufacturing dropped from 54.8 to 52.0 in June, below expectation of 54.0. That's the lowest level in 23 months. PMI Services dropped from 55.0 to 52.4, below expectation of 54.5, a 5-month low. PMI Composite dropped from 53.7 to 51.3, a 6-month low.

Australia PMI composite dropped to 52.6, downside risks have increased

Australia PMI Manufacturing ticked up from 55.7 to 55.8 in June. PMI Services, on the other hand, dropped from 53.2 to 52.6. PMI Composite dropped from 52.9 to 52.6, a 5-month low.

Japan PMI manufacturing dropped to 52.7, but services jumped to 54.2

Japan PMI Manufacturing dropped slightly from 53.3 to 52.7 in June, below expectation of 54.4. PMI Services rose from 52.6 to 54.2, highest since October 2013. PMI Composite Output rose form 52.3 to 53.2.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 143.00; (P) 143.63; (R1) 144.57; More....

Intraday bias in EUR/JPY is back on the downside with break of 141.93 minor support. Current fall is viewed as the third leg of the consolidation from 144.23. Deeper decline could be seen to 137.83 support. On the upside, decisive break of 144.23 will resume larger up trend.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Sustained trading above 100% projection of 114.42 to 134.11 from 124.37 at 144.06 will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will now remain bullish as long as 132.63 support holds, in case of deep pull back.

Economic Indicators Update