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Market Briefing - Nameless Fears Stalk Markets, Sending Investors to Safe Havens

CalendarJuly 6, 2022
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Markets are acting like they’re afraid of monsters under the bed. Global markets plunged, the safe-haven yen rallied, and the dollar marched to a new two-decade high in yesterday’s session as on widely-reported “recession fears”, but we looked under the bed and couldn’t find any news item or change in economic fundamentals that might have served as the proximate trigger for such a selloff. The best theory we can offer is that traders and investors are unwinding exposures and resetting positions for a quarter in which underlying market trends carry the potential to defy expectations. 


Oil prices are trying to eke out a recovery after West Texas Intermediate dropped below $100 a barrel and the global Brent benchmark tumbled almost 10 percent to start the month. In contrast with several selloffs in the last year, the Canadian dollar is trading north of the psychologically-important 1.30 mark on a sustained basis - something that suggests further downside is growing more likely. 


The pound is holding slightly above a two-year low after Boris Johnson’s cabinet disassembled itself in spectacular (by British political standards) fashion yesterday. Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid, along with a slew of junior ministers, proffered their resignations, putting pressure on the Prime Minister to resign. Despite achieving overwhelming unpopularity among Tories and the general population, Mr. Johnson appears unwilling to fall on his sword, and has already appointed several officials to take the vacant cabinet positions - something that suggests more substantive regime change is not in the offing. 


The euro slipped another 0.3 percent overnight, bringing it closer to parity against the dollar as energy prices climbed on labour disruptions in Norway and traders bet Russia could preemptively cut off gas supplies, pushing the common currency area into recession. Implied volatility has risen sharply across near-dated expirations as market participants try to hedge themselves against the turbulence that might ensue if parity is broken. 


At 10 am today, the Bureau of Labor Statistics is expected to say job openings fell to 11 million in May from 11.4 million in the month prior. The agency’s Job Openings and Labor Turnover Survey is lagged relative to its less-informative cousin, the non-farm payrolls report, but provides a deeper view of labour market conditions. 


Minutes taken during the Fed’s June meeting will help markets assess the odds of another 75 basis point move this month. The discussion record might provide a more nuanced view on why officials pivoted away from targeting changes in the core personal consumption expenditures index toward using headline inflation indices, and could include some preliminary thoughts on how the central bank plans to deal with a downturn in the real economy. Implied policy rates, which have fallen sharply in the last week, are vulnerable to change when the readout is published at 2 pm. 


Upcoming Events

WEDNESDAY

USD Job Openings and Labor Turnover Survey, May

USD    Federal Reserve, June Meeting Minutes

THURSDAY

USD Trade Balance, May

USD    Weekly Jobless Claims

MXN    Bank of Mexico,  Meeting Minutes

USD    Department of Energy Weekly Inventories

FRIDAY

EUR European Central Bank Speech, Lagarde

USD    Non-Farm Payrolls, June

USD    Baker Hughes Weekly Rig Count

Author

Karl Schamotta

Karl Schamotta

Chief Market Strategist

Karl leads Corpay’s currency research group, focused on analyzing shifts in the world economy and creating strategies that help businesses harness market volatility.

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