Daily Market Outlook, July 25, 2022

Overnight Headlines

Most Asia equity markets are trading lower this morning on concerns about the global economic outlook. One driver may be last Friday’s surprising plunge in the US services PMI survey to 47.0 from 52.7 which triggered a drop in 10-year Treasury yields below 2.75%. US Treasury Secretary and former Fed Chair Yellen, however, said that she does not see a broad recession due to the strong labour market even if this Thursday’s Q2 GDP is negative for a second successive quarter.

The UK calendar is light on official data this week. The monthly CBI industrial survey for July is scheduled to be released this morning. The report will provide the usual update on orders, output and selling prices. Last month showed moderation in total orders and expected output, and there was a notable easing in the net balance for selling prices, although it remains high relative to pre-Covid levels. Today’s report will also contain more detailed quarterly results, and possibly of most interest will be the extent to which investment intentions are holding up. The last set of quarterly questions in April showed the weakest investment intentions since early 2021. In politics, the two remaining candidates in the Conservative leadership contest to be next PM, Rishi Sunak and Liz Truss, will face each other in a televised debate later today.

The German IFO survey will be closely watched as usual for the latest gauge of business sentiment in the Eurozone’s biggest economy. Last month’s headline business climate index fall was led by a particularly large drop in the forward-looking expectations component. Look for the headline index to decline further in July to 90.0 from 92.3, which would be a two-year low reflecting big concerns about energy supply and security. Also look for falls in both the current assessment index to 97.0 (from 99.3) and the expectations index to 83.0 (from 85.8).

In the US, the Dallas Fed’s regional manufacturing survey and the Chicago Fed’s national activity index will come out. They normally attract limited attention, and more important data releases are due later this week, but markets will be looking for further signs of economic slowdown.

Overnight, the minutes of the Bank of Japan’s June meeting will be released. The BoJ stands out as the only G7 central bank to keep interest rates at ultra-low levels. It will be interesting to see if there are any signs of pressure on the BoJ to alter its stance as inflation creeps higher. Policymakers, though, are more likely to maintain current policy settings given that evidence appears to show domestic price pressures remaining subdued.