Wall Street tumbles before ECB forum – Daily Market Brief, June 29, 2022

European stocks are heading for a fall on the open after Wall Street closed firmly in the red overnight and ahead of Bailey, Lagarde & Powell taking to the stage at the ECB forum.

·     Stocks head lower as the global economic outlook darkens

·     German inflation is expected to rise to a record high of 8.8% YoY

·     Gold holds steady ahead of the central bank officials Policy Panel

The three main indices on Wall Street fell yesterday after rising commodity prices and dire consumer confidence fuelled recession fears. The Conference Board’s consumer confidence index dropped to its lowest level since February 2021, with near-term expectations dropping to the lowest level in almost a decade.

Meanwhile, commodity prices rose after China eased COVID travel restrictions, reviving fears that the Federal Reserve will need to hike rates aggressively to tame inflation. The Nasdaq closed 3% lower, and the S&P 500 dropped 2%.

Heading towards the European open, the FTSE is pointing to a 0.6% drop, and the DAX is looking at a 0.5% fall, both paring gains from the previous session.

German inflation

Attention in the European session will be on German inflation data, which is expected to show that prices continued to rise in May, reaching a new record high of 8.8%, up from 8.7% in April. Hot inflation will pile pressure on the ECB to accelerate its rate hiking cycle. Yesterday ECB President Christine Lagarde hinted at larger interest rate rises after a 35 basis point hike in July.

The data comes after dismal German consumer confidence data yesterday, which showed that morale had fallen to a record low amid surging prices and as recession risks rise.

ECB forum

Look ahead to later in the session US GDP data is due to be released. Expectations are for a confirmation of the previous reading of -1.5%. However, this is the third reading for the first quarter, so it is not expected to be market moving.

Instead, the focus is expected to be on central bankers as BoE’s Andrew Bailey, ECB’s Christine Lagarde, and the Fed Chair Jerome Powell are set to take to the stage at the annual ECB forum. Discussion between the central bank officials will be vital in shaping the market expectations of policy normalization. The market will be keen to hear what the central bank heads say regarding the trade-off between reining inflation and the prospect of a soft landing, which is looking increasingly unlikely in Europe.

Gold

Gold is struggling to find demand, holding steady around 1820 after two straight days of declines. The precious metal is being supported on the one hand by recession fears driving safe-haven demand. However, Gold is also coming under pressure on the prospect of aggressive monetary policy tightening from the Federal Reserve.

Traders are refraining from placing large directional bets ahead of the central bank heads speaking at the Policy Panel. A very hawkish stance from Jerome Powell could lift the USD and send non-yielding, dollar-denominated gold back lower towards $1800.

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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