Week in Review: 11-15 July 2022

WEEK IN REVIEW

 

US Inflation

 

Source: Trading Economics

 

The annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November of 1981, from 8.6% in May and above market forecasts of 8.8%. Energy prices rose 41.6%, the most since April 1980, boosted by gasoline (59.9%, the largest increase since March 1980), fuel oil (98.5%), electricity (13.7%, the largest increase since April 2006), and natural gas (38.4%, the largest increase since October 2005). Food costs surged 10.4%, the most since February 1981, with food at home jumping 12.2%, the most since April 1979. Prices also increased significantly for shelter (5.6%, the most since February 1991), household furnishings and operations (9.5%), new vehicles (11.4%), used cars and trucks (1.7%), and airline fares (34.1%). Core CPI which excludes food and energy increased 5.9%, slightly below 6% in May, but above forecasts of 5.7%. Data Source: U.S. Bureau of Labor Statistics

Chart of the United States Inflation Rate:

 

OIL

 

Source: Seeking Alpha

 

After spending a few days in Israel to reassert America's presence in the Middle East, President Biden on Friday will become the first U.S. leader to fly directly from Tel Aviv to Saudi Arabia. On the itinerary is somewhat of a resetting of relations, including energy security, Israeli-Saudi ties and establishing a cohesive regional front to counter Iran. The trip will be a big policy U-turn for Biden, who has previously labeled the Kingdom a "pariah" and refused to talk with Crown Prince Mohammed bin Salman in the aftermath of the killing of U.S.-based columnist Jamal Khashoggi.

What's in it for the Saudis? Riyadh is looking for ironclad security guarantees, especially after Biden ended U.S. support for offensive operations in Yemen. He ordered the removal of Patriot missile batteries and other advanced military systems in 2021, even as the kingdom was being hit by rocket attacks from Iranian-backed Houthi rebels. Arms transfers from China to the Saudis have also expanded by nearly 400% over the past four years, with the U.S. continuing to refuse to sell drones to the Kingdom.

What's in it for the U.S.? WTI crude oil (CL1:COM) tumbled below $91 on Thursday - erasing all the gains seen in the wake of Russia's invasion of Ukraine - though U.S. gasoline prices remain expensive at the pump, averaging $4.58 per gallon nationwide. Biden is set to ask Saudi Arabia to pump even more, in the latest effort to tame high energy prices that are weighing on the economy. According to the International Energy Agency, the Saudis and UAE are the only two producers with significant spare capacity, holding just under 3M barrels a day of idle output between them (about 3% of global demand).

Outlook: "The world has never witnessed such a major energy crisis in terms of its depth and its complexity," IEA Executive Director Fatih Birol warned at an energy forum in Sydney earlier this week. "We might not have seen the worst of it yet. This is affecting the entire world."

 

 

Euro = Dollar 

 

Source: Bloomberg

 

Euro Drops to Dollar Parity for First Time in Two Decades. Energy crisis, recession risks weigh on the common currency. Weaker euro may stoke record inflation in the euro area.

 Chart Source: Trading Economics

 

 

 

Elon Musk Walks Away from Twitter 

 

Source: BBC

Twitter sues Elon Musk over takeover deal.Twitter is suing billionaire Elon Musk to try to force him to buy the social media firm, setting up a legal battle with the world's richest man.
It comes after Mr Musk announced he was walking away from his proposed $44bn (£37bn) takeover of Twitter on Friday.

 

 

 

Big Banks’ Earnings

Source: CNBC

 

JPMorgan earnings fell short of analyst expectations as the bank built reserves for bad loans by $428 million. Shares of the bank fell nearly 5% in trading Thursday, hitting a fresh 52-week low.
Chairman and CEO Jamie Dimon warned geopolitical tension, high inflation and waning consumer confidence could hurt the economy “sometime down the road.”

 

 

 

 

 

Markets

 

Source: Seeking Alpha

Stocks finished sharply higher on Friday, snapping a five-day losing streak thanks in part to stronger than expected retail sales data and a moderation in inflation expectations. Financial stocks paced Friday's gains, with Citigroup surging 13% as it reported the best second-quarter results of any big bank so far. Meanwhile, comments from the president of the Atlanta Federal Reserve indicated that he likely would not support a potential 100-basis point rate hike at the central bank's upcoming policy meetings. But Friday's rally still was not enough to overcome three days of selling earlier in the week, leaving the three major market indexes with weekly losses of 1.6% for the Nasdaq, 0.9% for the S&P 500 and 0.2% for the Dow. 

 

A dizzying week for stocks but some respite on Friday as markets snapped back halting a five-day slide. Traders have reduced their bets for a bigger Fed hike and swaps are pricing in a 75bps of tightening this month as officials are wary of more. Despite this, there is still a 47.5% chance that the US will slip into a recession within the next year.

 

Crypto

 

Source: Reuters

U.S. crypto lender Celsius Network said on Wednesday it had filed for bankruptcy in New York, becoming the latest victim in the cryptocurrency sector of a dramatic plunge in token prices.

New Jersey-based Celsius froze withdrawals last month, citing "extreme" market conditions, cutting off access to savings for individual investors and sending tremors through the crypto market.

In a court filing at the U.S. Bankruptcy Court for Southern District of New York, Celsius estimated its assets and liabilities as between $1 billion to $10 billion, with more than 100,000 creditors. The company has $167 million in cash on hand.

 

Despite Bitcoin finishing 5% down on the week, it climbed for the third consecutive day, erasing much of the losses from the beginning of the week

 

 

 

Chart Source: Trading Economics