June 27, 2022
“Eurozone inflation figures due this week are projected to rise to 8.3%, signalling a further increase for the cost-of-living across the continent – this should be enough to cement expectations for a 25bp ECB rate hike in July, followed by a 50bp hike in September.”
Sam Cornford, Partner – Head of Trading
US hedge funds are running their most cautious bets on stock prices in more than a decade, in a sign that many managers believe market declines may yet have further to run. By the middle of this month, US funds had cut their net exposure — the difference between bets on rising prices and bets on falling prices — to around their lowest level since at least 2010. Funds in Europe and Asia, meanwhile, cut their bets to around the lowest level of the past year. BlackRock star manager Alister Hibbert, one of the sector’s strongest performers, recently moved his portfolio so that bets on falling prices outweigh bets on rising prices. The negative sentiment comes during a very tough year for equity hedge funds, many of which have been hit by a sharp sell-off in their holdings in fast-growing technology stocks, while also finding they have been holding insufficient short positions. The first five months of this year marked the worst start to a calendar year for equity long-short funds on record, according to data group HFR.
The number of companies signing up to lease London office space for the first time hit a record last year, allaying fears that Covid would kill off the city’s ability to attract large employers. According to an analysis by estate agency Cushman & Wakefield, 59 businesses made their first foray into central London last year, a record since the company began tracking data in 2013. A third of those were businesses relocating from outside London and the remainder were start-ups signing their first office lease in the city, according to the agency. The high figures show a rebound in demand from 2020s record lows and are partly explained by the release of pent-up demand from tenants that opted to stay put during successive lockdowns in the first year of the pandemic. But they also demonstrate the capital’s enduring appeal to businesses, despite higher office costs and the rise of homeworking, and provide a positive signal to London property owners, which have been nervously waiting on employers’ office decisions.
Sterling is well bid against most major currencies overnight. Prime Minister Boris Johnson’s government will press ahead with legislation to scrap rules on post-Brexit trade with Northern Ireland, setting up further clashes with the European Union. The legislation, which would unilaterally replace parts of the post-Brexit deal that was agreed in 2020 by Britain and the EU, is due to be sent back to parliament’s lower house for a so-called second reading. After clashing last year over sausages and submarines, France’s Emmanuel Macron and Britain’s Boris Johnson were all smiles at a G7 summit on Sunday, with disputes over Brexit not even coming up at bilateral talks focused mainly on Ukraine. Johnson’s office said he and Macron agreed to provide more support for Ukraine – Britain is ready to guarantee a further $525 million of World Bank loans to Ukraine later this year, taking total fiscal support this year to $1.5 billion.
A deadline for payment on Russia’s foreign debt has passed, putting the country on course to default for the first time in almost a quarter-century after western countries blocked Moscow’s attempts to circumvent financial sanctions. About $100 million worth of interest on Russian government bonds came due on Sunday evening with no sign of payment, marking the end of a 30-day grace period during which the country sought to avoid a full default. G7 leaders meeting for a summit in the Bavarian Alps are also seeking a deal to impose a “price cap” on Russian oil as the group works to curb Moscow’s ability to finance its war in Ukraine. All leaders of the Group of Seven rich democracies are concerned about a looming economic crisis as growth slows and inflation soars, German Chancellor Olaf Scholz said after a working session on the global economy at this year’s annual G7 summit. They have ambitions to enlist a range of countries beyond the group to put a ceiling on the price paid for Russian oil.
The dollar is weaker than most major currencies in the early morning trade. Group of Seven leaders on Sunday pledged to raise $600 billion in private and public funds over five years to finance needed infrastructure in developing countries and counter China’s older, multitrillion-dollar Belt and Road project. Biden said the United States would mobilize $200 billion in grants, federal funds, and private investment over five years to support projects in low- and middle-income countries that help tackle climate change as well as improve global health, gender equity and digital infrastructure. Biden said hundreds of billions of additional dollars could come from multilateral development banks, development finance institutions, sovereign wealth funds and others. On Saturday, the White house declared that the G7 will address what they see as China’s use of forced labour and intellectual property theft and other issues. President Biden signed into law the first major federal gun reform in three decades, days after a Supreme Court decision to expand firearm owners’ rights.
Global stocks extended gains today after posting their best performance in a month last week. Mining stocks led an advance in Europe’s Stoxx 600, while Chinese technology shares helped an Asian equity index jump more than 1.5%. U.S. futures rose, with tech stocks set to extend gains following their best week since March. Quarterly portfolio rebalancing by institutional buyers could be helping equities, as investors assess whether inflation is cresting, and recession can be averted. JPMorgan Chase & Co.’s Marko Kolanovic is calling for stocks to rise 7% this week as pension and sovereign wealth funds shift their exposures. Treasuries slipped, pushing the rate on the US 10-year note to 3.15%. Yields have retreated from June highs on growth worries, but whether that marks the end of the Treasury bear market is a live debate. The dollar dipped. Industrial metals rebounded, while oil fluctuated. A degree of improvement in China’s economy amid easing Covid restrictions may be helping sentiment toward raw materials.
Main Economic Data/Central Banks/Government (All Times CET)
8:00 a.m.: Norway May retail sales
9:00 a.m.: Spain May PPI
9:00 a.m.: ECB’s Villeroy speaks
11:30 a.m.: Germany sells bills
2:50 p.m.: France sells bills
7:30 p.m.: ECB’s Lagarde opens forum on central banking in Sintra, Portugal
Earnings include Prosus, L’Occitane
To learn more about Ballinger & Co., please visit our website or our LinkedIn page.