Good morning and welcome to episode 628 of ‘Talking Bull’. In this video/podcast we cover the main headlines and what to expect from the day ahead.
We take a technical look at key markets that are likely to be impacted by today’s events. Also, we participate in a ‘Gun to the head’ challenge where each of us calls a live trade. These will expire at 9pm tonight and we will keep track of the progress over time.
We hope you enjoy it!
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Joe and Steve made 1.12R and 1.15R on DAX and NASDAQ. Jamie was stopped out on NZDCHF.
We have included an illustration based on a £1000 account. This will follow the combined return of our morning trades by risking 1% of the trading capital per trade. The 1% risk is a variable monetary amount and will rise and fall based on the success of the calls.
We are currently up 143.56% collectively since we began recording Talking Bull on the 30th October 2019.
Fed front loads with 75 basis-point rate hike
The Federal Reserve increased the Fed Funds rate to 1.75% at the latest meeting which came as little of a surprise following the effective briefing to the Wall Street Journal on Monday. The usually hawkish Kansas City head George dissented and called for a 50 basis-point hike.
After the largest rate hike for over 30 years, the Fed noted that it is highly attentive to inflation risks and interest rates are expected to increase further.
There was a big shift in rate projections from individual members with the median projection that rates will be at 3.4% at the end of this year from 1.9% at the March meeting. The end-2023 median rate was also increased to 3.8% from 2.8%, but rates are expected to edge lower in 2024.
Chair Powell determined to curb inflation
Chair Powell stated that it was essential to bring inflation down and that on-going rate increases are appropriate, especially as inflation risks have increased.
Powell did see evidence that the housing sector is softening and he expects the labour market to move into better balance with the unemployment rate expected to edge higher to help curb inflation.
He added that the July decision was liable to be a choice between 50 or 75 basis points while the short-term neutral rate is likely to be 3.00-3.50%.
US retail sales tick lower
US retail sales declined 0.3% for May after a downwardly-revised 0.7% gain the previous month and below consensus forecasts of a 0.3% increase. Underlying sales increased 0.5% on the month with the control group unchanged for the month.
US retail sales data is not adjusted for prices which suggested that volumes were lower.
Dollar corrects slightly weaker
The US dollar overall edged lower after the Fed policy decision with a covering of long positions after strong gains earlier in the week.
The aggressive front loading of rates also led to some hopes of an earlier than expected peak.
Risk appetite was also resilient with net gains on Wall Street which limited potential defensive support for the US currency.
Dollar selling was limited given overall Federal Reserve moves and risk appetite was still relatively fragile.
ECB aims to cap peripheral yields
The ECB announced that it would skew bond re-investments of maturing debt to help more indebted countries and will also devise a new tool to stop fragmentation with work on the tool speeded up. There was a decline in peripheral yields following the move, but the Euro failed to benefit
Surge in Australian employment
The Australian jobs data recorded a strong employment increase of over 60,000 for May compared with expectations of a 25,000 gain with the unemployment rate held steady at 3.9%.
The data maintained expectations of a more hawkish Reserve Bank policy stance.
BoE expected to hike rates again
Consensus forecasts are for the Bank of England to raise rates by a further 25 basis points to 1.25% on Thursday.
There are major uncertainties over the domestic outlook while global pressure for tighter policies has intensified which will complicate the Monetary Committee’s decision.
SNB expected to be patient
The Swiss National Bank is expected to hold interest rates at -0.75%, but with more hawkish forward guidance given the increase in inflation.
BoJ under pressure to yield
The Bank of Japan will announce its latest policy decision on Friday with pressure for the bank to let 10-year yields to move higher, especially given global pressures.
A move to let yields increase would strengthen the yen.
08.30: Swiss National Bank policy decision
12.00: Bank of England policy decision
13.30: US jobless claims
03.00 (Fri approx): Bank of Japan policy decision
Key events over the next week
June 22nd: UK CPI inflation data
June 22nd: Fed Chair Powell congressional testimony
Gun to head challenge – Update
Today’s trade idea
Have a great week everyone.