Early Morning Call: Europe expected up; Fed stress test; recession fears

Recession fears

Recession fears and impact on demand have been the main topics this week.

Equity markets look like they could end the week on a positive note, a week that has nonetheless been very choppy, moving to the rhythm of Federal Reserve chair, Jerome Powell's testimony to US Congress.

Indices outlook

US indices ended the session higher yesterday, leading the Asia-Pacific region to a similar outcome. In Europe the main indices are all trading higher this morning.

Yesterday, Powell concluded his two-day testimony. The Fed chair again stressed the central bank's "unconditional" commitment to taming inflation, even if it poses risks to growth. Powell's words were echoed by Fed Governor, Michelle Bowman, who said that she supported 50 basis point (bps) hikes for "the next few" meetings after the July one.

The Fed also gave all 33 of the country's biggest banks a pass in the annual stress tests. The results pave the way for the banks to allow any dividends or share buybacks to go ahead.

Overnight in Japan, consumer price index (CPI) came in in line with expectations. CPI rose by 2.5% in May year-on-year (YoY), at the same pace of the previous month. same with core CPI, up 2.1% YoY.

This is the second month in a row that Japan's annual core consumer inflation topped the Bank of Japan's (BoJ) target. But with wage growth subdued, the BoJ's focus is likely to remain the same: supporting a sluggish economy rather than fighting inflation.

Here in the UK, Gfk consumer confidence fell to -41 in June, setting a new record low. Retail sales fell 0.5% in May compared to April. Economists had forecast a 0.7% fall.

Later this morning, the German Ifo institute is set to release its latest business climate data. Economists expected it to stay broadly unchanged, down to 92.9 in June from 93 the previous month.

On the currency front, the dollar shows signs of weakening. The dollar basket is on course to post its first weekly loss in four.

Commodities

The storm has passed on the commodity markets, for now. Growing recession fears severely affected energy, material and agricultural prices.

There is very little move on the oil market this morning, but after two days of heavy losses, WTI and Brent are firmly set for a third straight week of decline.

Copper also trades up this morning, but this week's demise means that the metal is about to post its worst weekly loss since May 2021.

There was a similar trading pattern for wheat in the last few days. We've seen a timid recovery this morning, but following five sessions of losses.

And finally the cotton price has slumped, clocking an 11th straight day of decline, and sending the price below $1 per pound for the first time since September 2021.