CHF spikes after SNB shocks with big 50bps hike – Daily Market Brief, June 17, 2022

European stocks are set for a firmer open on Friday but are on track to book large losses across the week as recession fears grow.

·         A week of rate hikes has raised recession fears & sent stocks tumbling lower

·         BoJ bucks the trend and keeps rates on hold sending the yen sliding 

·         Tesco sees sales fall by a more than expected at 1.5% YoY

Risk sentiment has taken a huge hit this week, after central banks, except the BoJ, show that they are willing to raise interest rates aggressively to tame inflation, even if this means pushing the economy into recession.

There has been plenty of central bank action this week, with some very hawkish surprises. In a move that seemed inconceivable just a week ago, the Fed raised interest rates by 75 basis points, fuelling recession fears. US bourses closed sharply lower, with the Nasdaq down 4% hitting a level last seen in November 2020. In an unexpected twist, the USD also tumbled lower.

This was likely due to the SNB shocking everyone with a 50-basis point rate hike. CHF competes with the USD as a safe-haven currency. With the SNB suddenly looking more hawkish, the Swissie will likely have taken some safe-haven demand from the USD.

BoJ

Standing out from the crowd, the BoJ left interest rates unchanged overnight and pledged to stick to its ultra-loose monetary policy. In a world where major central banks are hiking rates aggressively, a dovish BoJ is dragging the yen lower. USD/JPY trades 1.4% higher in early trade.

BoE

Yesterday the BoE also hiked rates by 25 basis points as planned, taking the lending rate to 1.25%, a 13-year high, as the struggle against inflation continues. The BoE now forecasts consumer prices will rise 11% in the coming months.

The pound rose against both the USD and the EUR as investors price in a more hawkish BoE in the coming months. However, with the UK economic growth already stalling, a recession seems unavoidable.

The FTSE fell 3.1% yesterday and is set for a 3.7% decline across the week, which would mark its worst weekly performance since the end of February. Today the FTSE is set to open 0.3% higher.

Tesco

Tesco’s share price will be under the spotlight after the UK’s largest retailer maintained full-year profit guidance even as quarterly sales declined by a more than expected 1.5% YoY. The softer sales highlight changing customer behavior due to the cost of the living crisis engulfing the UK.

Full-year forecasts of adjusted operating profit remain between £2.4 billion and £2.6 billion.

Tesco’s share price has fallen 15% since its February high of just over 300p.

Looking ahead

Eurozone inflation data will be the key release in the European session and is expected to confirm the 8.1% YoY preliminary reading in May. This was up from 7.4% in April. The data comes as the ECB prepares to raise interest rates in July.

Federal Reserve Chair Jerome Powell is due to speak later.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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