ECB to Hold Emergency Meeting
The ECB are calling an emergency meeting to discuss the bonds sell off witnessed over the last few days leading to speculation that it may introduce a policy instrument to thwart further sell offs and reduce the spread. The ECB are increasingly concerned that the deteriorating market conditions could trigger another debt crisis across the eurozone, while the spread between the German 10-year and Italian 10-year now stands at 2.4 percentage points – representing a rise of 2 percentage points before the ECB’s monetary policy meeting last Friday. It’s likely that the ECB will look to target the selloff of  peripheral bonds by buying up bonds – with Italy being the prime target. Such a purchase of bonds would likely come with conditions from Frankfurt, which Mario Draghi will no doubt be biting his nails over. Of course, Draghi – Italy’s current Prime Minister – served as the President of the ECB between 2011 and 2019, so is well versed in the conditional nature of Frankfurt’s interventionism. Indeed, during the Eurozone debt crisis Draghi oversaw the ECB demanding that Greece reduce its public debt to GDP from 160% to 120% by 2020. It currently stands at 193.30%.Meanwhile, Italy’s debt to GDP stands at 150.80% and as mentioned yesterday, Fitch are predicting that Italy’s deficit will be 5.5% of GDP over the course of 2022 and 4.4% over 2023, therefore digging an ever-greater hole into their sovereign debt. As the risk-off appetite continues to grow on the continent and economic predictions look evermore concerning for Italy, foreign investors are increasingly withdrawing from holding Italian debt. Indeed, in 2008 the share of Italian public debt held by foreign investors has fallen from around 45% in 2008 to around 27% by 2012 before again falling to under 25% today. Elsewhere in the Eurozone, Greece’s 10-year rose above 4.4% this week while Portugal and Spain’s both rose to 2.9%.

As the markets wait to hear any policy announcement from the ECB’s emergency meeting, Lagarde’s speech at 17:20 this evening which will no doubt provide some clarification on the matter.  ​​​​​​

Bloomberg has more:


Fed to Raise Rates for Third Consecutive Time
Lagarde’s speech comes just a few hours before the FOMC’s latest monetary policy decision where they will announce the size of what will be their third consecutive rate hike. Presently, investors are weighing on the prospect of a 75bpt rate hike – a sizable adjustment from the 50bpt rate hike predicted a few weeks ago. This comes as inflation (currently at 8.6%) in the world’s largest economy is at a fresh 41-year high, with many forecasting this level to push higher. As the announcement draws closer, it also appears that there are a growing number of those speculating on a 100bpts rate hike, including Barclays and Jefferies. Elsewhere the founder of DoubleLine Capital LP, Jeffrey Gundlach (which has $122 billion in Assets Under Management) is calling for a 300bpt rate hike this evening – although one has to ask whether this is merely a publicity stunt. Presently, the general market consensus within the money-markets suggests that two 50bpt and one 75bpt rate hikes will be conducted by September and hence it is expected that a larger 0.75% hike would come before two subsequent 0.5% hikes.

CNBC has more:


Reaction in Energy Markets
Given the prospect of further monetary tightening, WTI crude futures have retreated somewhat slipping to around $119dpb after a fall of around 1.65% during yesterday’s session. There are also concerns that China’s consumption may see a reduction given a recent covid outbreak which may see officials impose another lockdown. The extent of this outbreak is as yet unclear, and hence markets will be waiting for any further information.

In Europe, Dutch TTF Gas Futures rose above €100-per-megawatt-hour mark, breaking a level not seen in over a month. This comes as investors weigh on further supply disruption and inventory levels easing up. Additionally, just last week one of the largest U.S. LNG terminals, Freeport, blew up and is not expected to be back at full capacity for another few months. This explosion was particularly alarming given that the terminal accounts for about 20% of U.S. LNG exports with 2/3rds of this being shipped to the UK and EU.


Have a great day.


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