Morning Round-Up

Good Morning,

Here are this morning's headlines:

Bond Markets- In the US, the benchmark 10-year government bond rose to its highest level since 2011 after surpassing 3.31%. This comes as investors are now weighing on the prospect of a 75bpt rate hike when the Fed re-convene tomorrow, with some including Barclays and Jefferies even forecasting a 100bpt rate hike. Presently, the general market consensus within the money-markets implies that two 50bpt and one 75bpt rate hikes will be conducted by September with many maintaining that the larger 0.75% hike would come prior to the two subsequent 0.5% hikes.

Yesterday, the 2-year and 10-year Treasury in the States yield curve briefly inverted, representing the first time this has happened since early April, signalling a higher risk of a recession. Given that this signal has been a prelude to every recession in the US since 1950 (within the space of two years), many investors are considering it as a red flag moving forward, especially given that inflation has been reaching levels not seen for four decades, forcing the Fed to raise rates quicker and for longer than previously anticipated. Nevertheless, as analysts including Erin Browne of Pacific Investment Management Co. have pointed out “[the] yield curve inversion may not be as good of an indicator as it has been in the past, particularly given the enormous amount of quantitative easing undertaken by global central banks”.

Yesterday, Italy’s 10-year bond yield rose to 4% - its highest level since 2014 as investors weighed on the prospect of stifling growth and soaring public debt. This now means that the difference between the Italian and German 10-year bond is at its widest point since 2020, with most expecting this gap to widen further.

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 Rome’s sovereign debt. This trend continues to concern investors and as such, foreign investors are increasingly withdrawing from the Italian debt scene. Indeed, in 2008 the share of Italian public debt held by foreign investors has fallen from around 45% in 20008 to around 27% by 2012 before again falling to under 25% today.  

Elsewhere in the Eurozone, Greece’s 10-year rose above 4.4% yesterday while Portugal and Spain’s both rose to 2.9%.

UK Unemployment Print Higher than Forecasted- This morning saw the release of UK employment data, where unemployment rose to 3.8% slightly higher than the forecasted figure of 3.6%. This represented a 0.1 percentage point increase from the previous months print and is a break from the trend of falling unemployment seen since the economy opened up from the pandemic’s lockdowns. Those out of work for over six months also rose at a rate not seen since late 2020 while the employment rate (currently at 75.6%) remains below pre-pandemic levels with total actual weekly hours worked standing at 1.04 billion (7.6 million below pre-pandemic levels).

While unemployment may have risen slightly, the UK economy is nonetheless close to full employment despite record levels of job vacancies (which jumped to a new high of 1,300,000. between March to May).

Crypto- Ahead of the Fed’s interest rate decision tomorrow, Bitcoin has dropped over 10% during early morning trading to around $20,825, representing an 18-month low. This means that Bitcoin has fallen well over 50% since its 2021 peak and comes as Ethereum and XRP have sunk 65% and 78% from there respective peaks. The FTC (Federal Trade Commission) are now stating that Crypto losses due to scams amount to over $1bn with over 46,000 people reporting losses.

Mexico Pursues Oil and Gas Nationalization- In Mexico, President Andrés Manuel López Obrador is pushing further in pursuing his vision of energy independence by reclaiming and nationalising oil and gas fields and associated infrastructure. Foreign investors’ fears in the industry are now continuing to grow with many looking at Obrador’s recent bill which nationalised Mexico’s lithium industry as a worrying prelude.   

According to The Wall Street Journal, Mexico City has rejected any new auctions for oil and gas exploration from private firms taking place. This also includes renewable energy generation projects such as wind and solar power, which is greatly needed if Mexico are to meet their clean energy target.

Some firms are already in legal proceedings with the government, with one of the largest being KRR (an American based PE firm) who are aiming to sue to $666m following a fuel-importing terminal being seized). Hence, as Mexico’s economic climate appears to get increasingly fragile, this story is well worth keeping an eye on.   

Have a great day.

Want to know how any of these topics could impact your business? Find out below: