- UK health minister Javid resigns as the crisis mounts
- US May factory orders +1.6% vs +0.5% expected
- UK parliament private secretary Saqib Bhatti resigns
- Rees-Mogg says it's 'business as usual' for Boris Johnson
- BOE's Tenreyro: I expect QE unwind to have no material effect on UK economy
- New Zealand GDT dairy price index -4.1%
- Canada May building permits +2.3% m/m vs +2.4% expected
- UK final S&P Global services PMI 54.3 vs 53.4 expected
- Eurozone final June S&P Global services PMI 53.0 vs 52.8 expected
- German June S&P Global services PMI 52.4 vs 52.4 expected
- Gold down $43 to $1766
- US 10-year yields down 7.1 bps to 2.83%
- WTI crude oil down $8.80 to $99.63
- S&P 500 up 0.1%
- USD leads, EUR lags
This was a day that had everything. It started early in Europe when the euro cracked lower and broke the double bottom at 1.0350. The trigger may have been a further rise in TTF natural gas prices alongside fears that Russia will cut off its neighbours supply and kick off a crushing recession.
The euro fall led to a broad bid for dollars. Initially cable held up fairly well but it soon nearly matched the euro's decline as it fell through 1.1950 to the worst levels since the height of the pandemic. A further wave of selling and lows at 1.1899 were hit as Chancellor of the Exchequer Sunak and health secretary Javid were among of a handful of MPs resigning their cabinet posts in protest of Boris Johnson's leadership. The flipside is that BoJo may use the crisis to pitch a corporate tax cut that could ultimately boost GBP.
The bond market added a twist to everything as yields fell. Normally that would be dollar-negative but because of the strong risk aversion it wasn't, nor did it hurt USD/JPY as the euro sellers preferred the safety of dollars.
The other big drama was in the oil market as crude traded in a massive range. It was up $3 to $111.45 after a surprisingly strong China services PMI but crashed lower to $97.43 on global growth worries.
That turn weighed heavily on the Canadian dollar as it rallies more than 200 pips at the highs to break the 2022 double top. Follow through was limited though and it retraced back to 1.3033 late. The Australian dollar looked to be the next domino to fall but residual strength from the 50 bps hike today and better China data kept it just above last week's low before a mild relief rally late.
The combination of lower yields and oil convinced some in the stock market that we've seen peak inflation. Forecasts are now for 50-65c/gallon drops in US gasoline and good demand has clearly cooled. Mortgage rates will also come down alongside yields. That thinking led to some bottom fishing in tech and oversold stocks. In turn, it erased a 2% decline in the Nasdaq and left it with a nearly 2% gain.
What a day. Tomorrow we get the FOMC minutes and the worry is that it will over-emphasize the hawkish stance of the Fed, something market participants expect to evolve shortly.