The Day at a Glance | Jun 29 2022

The Top

*The Federal Reserve is at the start of the increasing rates cycle: Loretta Mester, Cleveland FED.

*Inflation in Spain reached a new record in June after it widely exceeded estimates (10% annual vs 8.5%e.).

*Presidents of the ECB, FED, BoE, and BIS will attend an event in Sintra, Portugal, today; they will talk about inflation and monetary policy.

*In Germany, inflation became more moderate and set at an annual 8.2% rate; government actions were carried out to reduce taxes on gasoline and public transportation fees.

*The surprising increase in unemployment in Mexico during May mostly affected the agricultural, fishing, and livestock sectors.

*Xi Jinping reiterated that the zero-Covid policy is the most effective and economically viable in China.

*Members of the ECB are not against a 50bp increase in July.

*Emerging currencies in Asia logged their worst depreciation since 1997 in light of increasing rates among advanced economies.

*Idle capacity for oil production is at very low levels: Ben van Beurden, Shell CEO.

Economic environment

Central Banks against inflation. Jerome Powell, Chair of the FED; Christine Lagarde, President of the ECB; Andrew Bailey, Governor of the Bank of England; and Agustin Carstens, General Manager of the Bank for International Settlements, will take part in the ECB Forum on Central Banking in Sintra, Portugal, in order to talk about inflation and monetary policy. Markets will focus on any comments that will bring clarity regarding their expectations on interest rate increases among advanced economies. The forum will take place during a complicated moment for central banks who must fight off global inflation through interest rate increases, which remained extraordinarily low for over a decade. The most recent data on worldwide inflation has been mixed: In Spain, general inflation logged a new record level (10% annual), and underlying inflation set at its highest level since 1993, exceeding all estimates and points towards the fact that the hike in prices has not reached its peak; in Germany, inflation became more moderate after direct actions were taken by the government to reduce public transportation fees and ease the tax burden on gasoline purchases. The data suggests that inflation for the entire European block could continue increasing during June, and several members of the ECB have started to back more aggressive interest rate increases (50bp) in July. In the United States, Loretta Mester, President of the Cleveland FED, called for central banks not to be complacent in the fight against inflation and suggested acting forcefully in order to halt inflationary pressures and avoid long-term inflationary expectations from becoming unanchored. Mester cited research carried out by the FED to argue that costs are higher for central banks and the economy when not enough is done to maintain the stability in prices and keep inflationary expectations anchored; even if the inflationary problem is triggered by a supply-side shock in which monetary policy is less effective. If current conditions remain in place, Mester assured that she will back a 75bp increase in the US Federal Reserve`s meeting in July.