Early Morning Call: recession fears rise; EUR/USD briefly breaks parity

Indices outlook

It was a mixed session in Asia-Pacific, with the Japan 225 outperforming the region, helped by yen weakness.

In Australia the ASX 200 benefited from the latest job data. The unemployment rate fell to a record low of 3.5% in June, from 3.9% in May, and significantly beat market forecasts of 3.8%.

Singapore's GDP grew 4.8% in the second quarter, missing forecasts. Singapore's central bank also said gross domestic product (GDP) growth is expected to come in at the lower half of the 3-5% forecast range for 2022, while core inflation is now expected to rise further than previously anticipated.

In an off-cycle move, the bank decided to tighten its monetary policy for the second time this year, saying the action would slow inflation as the city-state joins other economies scrambling to fight mounting price pressures. Singapore’s central bank wasn’t the only one to hike. The Philippine central bank raised its interest rates by 75 basis points (bps).

And yesterday, the Bank of Canada (BoC) surprised the markets with a full percentage point hike, taking the main rate up to 2.5%.

Yesterday, US consumer price index (CPI) data beat forecasts, accelerating its pace to 9.1% year-on-year. Economists had expected an 8.8% increase.

US swaps markets are now showing that there's a one in two chance that the Federal Reserve (Fed) will take rates up by a full percentage point when it meets next.

Equity markets

Equity markets are gaining attention.

In the UK, Hays posted a record 23% jump in its fourth quarter net fees and expects its full-year operating profit to come in at about £210 million, the top end of its previous guidance.

Barratt Developments forecasts annual profit to be in the range of £1.05 billion to £1.06 billion, marginally ahead of company-compiled analysts' estimates.

Over in the US, investors await JPMorgan Chase & Co (All Sessions) and Morgan Stanley quarterly reports before the market open. They’ll be followed by Citigroup Inc (All Sessions) and Wells Fargo & Co (All Sessions) on Friday, and Bank of America Corp (All Sessions) and Goldman Sachs Group Inc (All Sessions) on Monday.

In Europe, equity markets showed small gains at the start of today’s session. Yesterday, the European Commission adjusted its GDP and inflation forecast, saying the rebound from the pandemic will be weaker than anticipated while inflation will be faster because of Russia's war in Ukraine.

The Euro area gross domestic product is likely to grow 2.6% this year, down from 2.7% and 1.4% in 2023, down from predictions of 2.3%. Inflation forecasts have gone up for this year from 6.1 to 7.6% and in 2023 up from 2.7 to 4% next year.

Forex

In this context of soaring inflation and weakening growth, the US dollar continues to strengthen.

EUR/USD trade broke parity following the stronger-than-expected US CPI data yesterday. USD/JPY (大口） set a fresh 24-year high, climbing above ¥138.

Commodities

Oil prices are little changed. Yesterday, EIA inventory data confirmed the rise in crude, gasoline and distillate stocks announced by the API on Tuesday.