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Powell in Congress, Recession Fears, API Inventories - What's Moving Markets

Economy Jun 22, 2022 06:37AM ET
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© Reuters

By Geoffrey Smith 

Investing.com -- The global market rally runs into a familiar pattern of fresh selling on recession fears. Fed Chair Jerome Powell heads to Capitol Hill for two days of testimony. President Joe Biden is expected to call for a suspension of the federal gasoline tax. Further afield, inflation in the U.K. hits a new high and the IEA warns of a total shut-off of Russian gas to Europe. Here's what you need to know in financial markets on Wednesday, June 22.

1. Global market rally fades

The global rally in stock markets quickly ran into a familiar pattern of fresh selling as recession fears once again took the upper hand.

Asian and European equities sank overnight and bonds rallied, with European markets underperforming as the International Energy Agency warned regional leaders to prepare for a total cut-off of Russian gas supplies.  

By 06:15 a.m. ET (1015 GMT), the yield on the U.S. 10-Year Treasury was down 8 basis points at 3.22%, while the 2-year note was down 7 basis points at 3.13%.

The fading of risk appetite was also evident in cryptocurrencies, where Bitcoin fell 4.0% to $20,441.

2. Powell in Congress; mortgage data due

Federal Reserve Chair Jerome Powell will begin two days of testimony to Congress on the state of the economy, addressing the Senate Banking Committee from 08:30 a.m. ET onward.

He’s likely to be grilled over the trade-offs between bringing inflation down and the risk of driving the U.S. into a recession (Citigroup analysts raised their estimate of recession risk to 50% on Tuesday).

Powell’s recent meeting with President Joe Biden had appeared to leave him with all the leeway necessary to bring inflation down from its 4-decade high. However, Congressmen and -women facing re-election in five months’ time may be less generous.

Signs of the U.S. economy starting to cool are already multiplying, with existing home sales falling for a fourth straight month in May as rising interest rates hit affordability metrics. MBA data on mortgage applications are due at 07:00 a.m. ET.

3. Stocks set to open lower 

U.S. stock markets are set to give up most of their Tuesday gains at opening, pending any sign from Powell that the economic trajectory will end up with the Fed tightening policy by less than currently expected.

By 06:15 a.m. ET, Dow Jones futures were down 361 points, or 1.2%, while S&P 500 futures were down 1.4% and Nasdaq 100 futures were down 1.7%.

Stocks likely to be in focus later include Altria (NYSE:MO), after the Biden administration published a plan that would force tobacco companies to remove most of the nicotine from cigarettes, weakening their habit-forming tendencies. Also of interest will be Toyota, which flagged attempts to raise output through September, despite ongoing problems with supply chains.

4. U.K. CPI hits new high as rail strikes continue

Inflation in the U.K. rose to another 4-decade high of 9.1% in May, as food and energy prices continued to take big bites out of consumers’ disposable income. Core inflation undershot expectations, accordingly, as spending on non-essentials was pared back.

Pipeline pressure in the system remains high, with factory gate prices rising 15.7% on the year and another 1.6% on the month. Developments aren’t being helped by the sustained weakness in sterling, which fell as low as $1.2176 before paring losses.

The U.K. is in the middle of a three-day national rail strike, one that could set an important precedent for this year’s round of public-sector wage increases. One regional chapter of the train drivers’ union RMT has agreed in principle to accept an offer of a 7.1% pay increase.

Separately, a new study found that Brexit had left the U.K. economy less open and competitive than before.

5. Oil lower as recession fears bite; Biden gas tax appeal seen likely

Crude oil prices continued to come off the boil as global recession fears clouded the demand outlook. Reports of a COVID-19 outbreak in the Chinese gambling hub of Macau did nothing to improve the mood.

By 06:30 a.m. ET, U.S. crude prices were down 4.7% at $104.71 a barrel, while Brent was down 4.2% at $109.84.

U.S. President Joe Biden is expected to call on Congress later to vote for a suspension of the federal gasoline tax, and to rally support for other measures that will cut prices across the U.S. As the measures are aimed at sustaining demand, it’s not clear that they will ultimately put downward pressure on global prices.

The American Petroleum Institute will report its weekly inventory data at 04:30 p.m. ET, a day later than usual due to Monday’s holiday.

 
Powell in Congress, Recession Fears, API Inventories - What's Moving Markets
 

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Comments (7)
Dennis Wozny
Dennis Wozny Jun 22, 2022 9:31AM ET
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LGB
Santosh Oak
Santosh Oak Jun 22, 2022 9:16AM ET
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The American government is totally at sea. THEY are running the government without any direction -- by trial and error. Biden will run the economy into the ground surely.
Stan Smith
Stan Smith Jun 22, 2022 9:04AM ET
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recession fears vs inflation fears. Fasten your seatbelts...there will be no soft landing
Cornel Pod
Cornel Pod Jun 22, 2022 9:04AM ET
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Based on historical data the Fed has succeeded in doing a soft landing about 10% of the time in the past 100 years which means the odds are like winning in a Vegas casino. They are also late and CAN'T repair easily if they are wrong due to trillions in debt already. Buckle up.
Lalit Mohan Pandey
Lalit Mohan Pandey Jun 22, 2022 9:04AM ET
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US supporting Ukraine war, don't want to remove supply chain disruptions, how raising rates will help. It will have negative impact of recession supported by both demand destruction and margin squeeze.
Jun 22, 2022 8:25AM ET
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The USA is in its final stages before collapse
ZS Beck
ZS Beck Jun 22, 2022 8:25AM ET
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Watch what you wish for... The US Iis 22% of the world GDP. The biggest. Imagine that collapse. You will be eating from the garbage can if there will be anything left for you.
David Lowe
David Lowe Jun 22, 2022 8:18AM ET
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So 18 pennies per gallon is supposed to get me excited about my gas bill?
Jurgen Daub
Jurgen Daub Jun 22, 2022 8:18AM ET
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what confirms its not the government that rises the gas prices.
Tony Vain
Tony Vain Jun 22, 2022 7:10AM ET
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Biden and his team are clueless on what there doing. Total incompetence.
Matt Kay
Matt Kay Jun 22, 2022 7:10AM ET
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this comment show how intelligent Americans are...
Ma Lu
Ma Lu Jun 22, 2022 7:10AM ET
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Challenge: Propose an improvement without using the word "war"
AD Parrot
AD Parrot Jun 22, 2022 7:10AM ET
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At least they can spell properly...
Darman Musafar
Darman Musafar Jun 22, 2022 7:06AM ET
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nice
محمد دینارزهی پسکوه
محمد دینارزهی پسکوه Jun 22, 2022 7:06AM ET
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Nice thanks
 
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