There is renewed concern

The US equity markets fell again yesterday, this time more sharply (-2% for the S&P 500 and -3% for the Nasdaq). The sharp decline in the Conference Board’s consumer confidence index is not unrelated to this: it confirms the signs of a downturn in the US labour market already highlighted by the slow rise in weekly jobless claims. The survey also showed an increase in inflation expectations. Finally, house prices continued to accelerate at +21.2% yoy. Conclusion: activity is slowing, but the Fed must continue its monetary tightening. The US 10-year rate is falling (3.13%) and the spread with the 2-year rate is collapsing: it is now only 6bp, which is fuelling fears of recession.

The fact that the Chinese President has just reaffirmed the usefulness of the Covid zero policy is not likely to reassure the markets about the growth outlook either. In Europe, household confidence is falling sharply, as we mentioned yesterday morning, due to inflationary pressures and perhaps already the resumption of the epidemic. The French government has also revised its 2022 growth forecast from +4 to +2.5%. In Sintra (Portugal), ECB members warned, one after the other, that the priority is to fight inflation and that a 50bp rise in key rates in July should not be ruled out, before a similar rise in September. The first inflation figures from the German Landers published this morning are rather reassuring from this point of view, below expectations and down in June compared to May. But the news from Spain is not good, with inflation soaring from +8.5% to +10% yoy. The EUR/USD exchange rate logically fell yesterday in a climate of greater risk aversion. It is yo-yoing around 1.05 this morning on the back of inflation figures published in the euro zone.

In addition to the German inflation data, we will have the European Commission survey today (probably bad) as well as the latest Q1 US national accounts estimate (GDP). And still a lot of speeches from central bankers in Sintra, including Fed members.