- US June CPI +9.1% y/y vs +8.6% expected
- Bank of Canada hikes rates 100 bps vs 75 bps expected
- BOC's Macklem: Front-loaded tightening cycles tend to be followed by soft landings
- Macklem Q&A: We think there are good reasons that a soft landing is achievable
- Fed's Bostic: Asked about 100 bps hike says 'everything is in play'
- Fed's Barkin: CPI report "certainly makes the case even stronger" to fight inflation
- The UK 1st round votes: Badenoch, Braverman, Mordaunt, Sunak, Truss, Tugendhat are in
- Beige Book: Nearly all districts noted modest improvement in labor availability
- US treasury auctions off $19 billion of 30 year bonds at a high yield of 3.115%
- Fed nominee Michael Barr receives enough votes for confirmation in the Senate
- US continues to push for price cap on Russian oil
- Crude oil has a build of 3.254M vs -0.154M estimate
- Reports of big Saudi and UAE oil production hikes called into question
- IMF warns that further disruptions in European natural gas supply would mean recession
Markets:
- Gold up $7 to $1732
- US 10-year yields down 5 bps, US 2-year yields up 9 bps
- S&P 500 down 17 points to 3801
- WTI crude oil flat at $95.76
- CAD leads, JPY lags
This was a wild day of surprises and unexpected market moves but when you stand back and inspect the overall changes, there wasn't anything in the market particularly new except for the deepening of the 2s10s inversion to 22 basis points -- the most in 22 years.
The euro touched parity again but only for an instant and then it lept to 1.0050 and later to 1.0122 before settling back to 1.0056.
The Fed funds market is now pricing in a 62% chance of 100 bps on July 27 up from near-zero before CPI. That's pushed the terminal rate to 3.65% from around 3.45% but -- importantly -- it's also pulled the peak forward to December from February, with cuts being priced in for 2023.
With long-end yields falling after CPI the market is signaling that a faster pace of hikes would be painful but that they would get inflation under control. That gave some comfort to stock markets after an early rout.
The dollar trade was more-convoluted. USD/JPY hit 137.86, which is a new high since 1998 but then fell back to 137.35. Can the Bank of Japan really avoid the inflationary pressures that have pushed US CPI above 9%? Especially with the yen in freefall?
The Bank of Canada unveiled an interesting playbook that the Fed could follow later this month. They surprised with 100 basis points but coupled that with repeated commentary that this is front-loading in order to keep the terminal rate lower than it might be otherwise. That seemed to find a receptive audience but maybe that's only because Canadian growth is still tracking comfortably positive for this year.
The loonie rose but that was helped by a bounce in oil and natural gas prices, with the latter up 7%.
