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Market Report 20-06-2022

Published: 20/06/2022 By ECAP

The Bank of England provided investors with yet another change in direction at its meeting last week. While the hike was largely expected, there were three hawkish dissenters, no dovish ones, and MPC communications turned hawkish, emphasising flexibility in responding to inflationary surprises, including 50bp hikes if needed. Sterling reacted well to the news, and though it lost some steam on Friday, it ended the week up against the US dollar. In addition to the key PMI release, we will see the inflation report for May released this week. A new record print could see markets price in more Bank of England hikes, and somewhat paradoxically serve to support the pound.

The ECB ad hoc emergency meeting, brought about by exploding spreads between peripheral sovereign debt and that of core countries, calmed the markets, in spite of the absence of details. While this was enough to put a temporary floor under the common currency, which actually managed to outperform most of its major peers, we expect that markets will demand details soon. This week's scheduled ECB speakers could shed some much needed light on the anti-fragmentation tool. Aside from that, Thursday’s advance PMIs should put to rest immediate contraction fears and could serve as a catalyst for a higher euro.