Daily Market Outlook, June 13, 2022

Overnight Headlines

Equity markets across the Asia-Pacific region have started the week noticeably lower, reflecting a broad deterioration in risk sentiment. Markets remain challenged by the prospect of aggressive policy tightening, particularly by the US Federal Reserve, which risk driving a material slowdown in economic growth. Market sentiment has also been knocked by the re-emergence of Covid outbreaks in Beijing and Shanghai leading to some targeted curbs being imposed, with concerns rising that widespread restrictions could be put in place.
The release of UK April GDP figures this morning showed the economy contract for a second-consecutive month. Declines were registered across all three broad sectors, industrial production, construction and services, which means that the Bank of England’s forecast of a 0.1% rise in GDP in Q2 overall, now looks ambitious.

Over the remainder of the week, the focus will be on several central bank policy updates with potentially the most significant for markets being those by the Bank of England and the US Federal Reserve. The Fed seems set to add to the recent spate of aggressive tightening moves by central banks. In contrast, while financial markets expect the Bank of England to deliver another 25bp rate rise, its message and also the Bank of Japan and Swiss National Bank, may continue to be more cautious stressing the need to balance inflation concerns against downside growth risks.

Later today, ECB officials Simkus, Holzmann and Guindos are due to speak. Last Thursday, the European Central Bank confirmed that it will probably raise interest rates by 25bp on 21 July. In addition, it indicated that rates could be hiked by a further 50bp in September with further rises expected to follow. Those announcements continued the recent trend of central banks surprising markets with more aggressive than expected tightening moves. While markets have largely priced in 75bp of policy rate increases over the next two meetings, comments from these officials will be closely watched for signs over how widely the ECB’s broad message is shared across the council members.

Elsewhere there is a dearth of economic data with no releases due in the UK, US or Europe. Early tomorrow the Office for National Statistics (ONS) will release the latest UK labour market report, primarily covering the three months to April. Expect the latest read to show that the market remains tight with a solid 220k rise in employment and a drop in the unemployment rate to 3.6%. Headline wage growth is also forecast to rise further above the 7% (3m/year) mark.