The Day at a Glance | Jun 15 2022

The Top

*ECB calls for an emergency meeting to discuss plans against volatility in the region`s debt markets.

*FED decision: Markets take into account a 75bp increase in the federal funds rate this afternoon.

*Surprising contraction in US retail sales during May (-0.3% m/m vs 0.2%e.), a possible sign of a slowdown in consumption.

*Xi Jinping reaffirms its support for Russia in a call with Putin.

*China confirms a stronger than expected economic recovery in May; investment (6.2% y/y) and industrial production (0.7% y/y) increased, retail sales receded less than expected (-6.7% y/y). 

*Industrial production in Europe rebounded during April (0.4% monthly; -2% annual).

Economic environment

ECB meets up to discuss sovereign debt market conditions. The European Central Bank held an emergency meeting this morning in order to define a plan in light of recent adjustments among financial assets in Europe, especially the strong depreciation of long term bonds. The start of an increasing rates cycle being announced in Europe has caused important increases in financing costs for economies like Italy – its 10 year bond has depreciated in recent days and yields went past 4% for the first time since 2014. There is a risk that financing costs may diverge between countries like Germany and France from Italy, Portugal, Spain or Greece`s,  which would complicate the monetary policy`s transmission in the region. Additionally, there is a risk of a debt crisis due to disorderly movements in markets and high levels of debt in the block`s periphery. According to recent reports, the ECB has called for a task force to prepare a new tool to confront the crisis, in which new rules are being considered regarding the reinvestment of assets in the bank`s balance with the intention of maintaining low interest rates in Europe`s periphery. The ECB`s emergency meeting is being held hours before the US Federal Reserve`s, where there could be a surprising interest rate increase announcement that may cause greater volatility in markets at a global level.