The Day at a Glance | Jun 13 2022

The Top

*Markets take into account more aggressive interest rate increases in the United States after recent surprising inflationary data.

*Pete Kazmir, member of the ECB, considers that carrying out a 50bp increase in June is warranted.

*Fiscal stimulus for gasolines have cost close to 100,000 million pesos up to May of this year, according to data from the SAT.

*The British economy surprisingly receded during April (-0.3% m/m); BoE could maintain a slow pace with interest rate increases.

*Tensions between China and the United States increase in the Taiwan Straits.

Economic environment

Markets take higher rates into account. After May`s surprising inflationary data was made public in the United States, which logged the fastest hike in prices in 40 years, markets have started taking into account more aggressive actions on behalf of the Federal Reserve to contain inflationary pressures. Markets now expect a 175bp increase by the end of September of 2022, and up to 255bp in the central bank`s 5 meetings throughout the rest of the year. This once again opens up the possibility of seeing the FED carry out a 75bp increase in one of its next meetings – something that hasn’t happened since 1994. Markets have even started to speculate that a 75bp increase could be carried out in the FED`s meeting this week. Expectations of a more restrictive monetary policy entails greater risks of a recession in the United States  as markets are concerned that higher rates will hinder consumption and economic activity overall. With this context, the 2 and 10 year Treasury bonds have reached their highest levels since 2007 (3.25%) and have caused an inverted yield curve; the spread between bonds is negative for the first time since April, which suggests that a recession is likely. The spread between 10 and 30-year bonds inverted on Friday. The dollar appreciated in light of these events as the dollar index (DXY) approached its highest levels since 2002, putting pressure on emerging currencies that had previously resisted.