In this weekly market briefing, the host outlines the key macro and market developments for the week of July 11‑15, 2022. He begins with the scheduled 10‑day maintenance of the Nord Stream 1 pipeline, noting that despite earlier anxiety, European natural‑gas prices fell over 10% after Canada announced it would return a stranded turbine, easing supply concerns. He then assesses euro‑zone recession risks, citing a Bloomberg survey that puts contraction odds at 45% and highlighting the ECB’s upcoming blackout period before its July 21 rate decision. The impact of China’s new BA.5 Omicron sub‑variant is discussed, with Chinese equities falling sharply amid fears of renewed lockdowns, while Japan’s market benefits from political stability. The US earnings season is previewed, focusing on major banks (JPMorgan, Morgan Stanley, Citi, Wells Fargo, BlackRock) and projecting a modest 4.3% Q2 earnings growth for the S‑P 500 – the lowest since Q4 2020 – with energy expected to outperform other sectors roughly 3‑to‑1. He reviews upcoming US CPI data, expecting a 1% month‑on‑month rise and a continuation of the market’s expectation of a 75‑basis‑point Fed rate hike. The host mentions President Biden’s planned meeting with Saudi Crown Prince Mohammed bin Salman, framing it as a political move to address inflation pressures. The UK Conservative leadership race is outlined, noting Rishi Sunak as the front‑runner among a field of 11 candidates and the potential fiscal implications. Elon Musk’s withdrawal from his $54.20‑per‑share Twitter acquisition is covered, including the ensuing legal threat from Twitter’s board. Finally, he lists the week’s economic calendar – BoE Governor Andrew Bailey, NY Fed President John Williams, US CPI, Beige Book, Chinese trade and growth data, G20 finance ministers meeting, and US retail sales – and closes with a call to like and subscribe.
Chapters
Okay, it is Monday, the 11th of July. I hope you're doing well and had a great weekend. Plenty for me to update you on, so I'm going to do my best to try and keep this under 10 minutes, get you up to speed of everything you need to know for the week ahead in markets. We're going to talk a little bit about Russian gas and the reason why, of course, there is that Nord Stream 1 pipeline 10-day maintenance period. Got a lot of people nervous last week. We saw a meteoric rise in German energy prices on the back of the risks that perhaps those taps don't come back on. So we'll discuss that and why natural gas has actually declined sharply this morning on a development of a new piece of information. We're also going to talk a little bit about the prospects of a eurozone recession. The ECB going to their blackout period later on this week, and we'll look at what can we expect from them going forward. We're also going to talk about the Chinese COVID situation. A new variant of an outbreak has now prompted some concerns about renewed risk of a lockdown. Chinese shares were down quite heavily in the overnight session. We're going to talk about earnings season that kicks off this week. Big US banks on Thursday and Friday really formalize things, and what can we expect not just from them but from all of the different equity sectors going forward? Elon pulls out for a change, and yes, pretty much as we've been saying on the channel for a while, he's pulled out of his bid for Twitter. So we'll look at the ramifications of that. And then we've got US CPI coming out this week amongst other also important economic data points, and of course a quick word on the Conservative UK party leadership race. So Let's get straight into it. As I promised, I'll try and keep it as on point as possible. And this is a map you're probably quite familiar with now. This is the one of the main conduit of Russian gas, Nord Stream, Nord Stream 2, obviously the one that's been at least part for the time being as all of these geopolitical developments play out. But what's happening is Nord Stream, which is the key conduit Russian gas going basically from Russia to Germany, is going into a 10-day scheduled maintenance period. And that's what was really a focal point of a lot of the issues for the energy market last week. Apprehension, anxieties, very much so, about what happens if Putin starts to play games with turning those taps back on, with the limited resources and high dependency that Germany has on Russia. What's happened here though in the overnight session is natural gas prices have actually in Europe fallen over 10%, so double-digit loss. And the reason for that is not only were prices particularly high last week, but Canada has said it would return a stranded turbine for a key Russian pipeline to Germany. And that's raised optimism then that tensions in Moscow will ease. Again, Russia haven't said anything to the wording of we're going to potentially not reopen Nord Stream. They were blaming that on a lack of goods, let's say, coming from Canada that was being problematic on the infrastructure side. But Canada has nipped that in the bud. So it'd be easy— it'll be interesting to see what Putin comes up with next on the back of that. But at the moment, natural gas prices have come off a little bit. In terms of the eurozone, the reason why we're talking about eurozone recession, obviously a big talking point last week was the euro hit a fresh 20-year low. We are very much on course towards parity at the moment. EURUSD this morning trading a 1.01 handle. Haven't quite tested that, that level just yet, but the end of last week got awfully close to it. So there's a sense of inevitability around it, particularly with some of the other currency movements we're seeing in the Swiss franc. In the Japanese yen, so on and so forth. Now, the main rationale here, of course, is about really what I've just been talking about— the engine room of the eurozone really facing real challenges economically at the moment. We heard Uniper, the major energy provider in Germany, having to be bailed out, EDF in France. So record high inflation, eurozone is likely to go higher. And don't forget, interest rates have not moved at all at this point in the euro area. And so the probability, according to a Bloomberg survey, economists, is that an economic contraction has increased to 45% probability from 30%, and that was only tracking at around 20% before the actual Russian invasion of Ukraine. As a footnote, European central bankers have until Wednesday essentially to hit the airwaves to communicate their intentions for the looming rate decision, which we're going to get on July 21st. 21st, because that's then when we go into our blackout period and there's no more words to be said as per their usual process. So keep an eye out on that. I did briefly mention, and definitely worth covering, that Chinese, Chinese stocks dropped on the threat of renewed COVID lockdown. This one's being called the highly infectious BA.5 Omicron subvariant, identified on Sunday as coming through Shanghai, and they've been warning of very high risks, and that stoked fears of renewed lockdowns And so consequently, their share price is down in China quite sharply overnight, actually stocks having their worst performance on an intraday basis for about a month. On the flip side, those staying in that geographic region, Japan was a slight bright spot. They were buoyed by the prospect of administrative stability after the ruling coalition expanded its majority in the upper house election. This comes, of course, after those tragic events that we saw with the former Prime Minister Shinzo Abe last week. Moving on, earnings season, as I briefly mentioned, kicks off this week. We've got to wait a little bit. It's really Thursday when we start, which is when we get the likes of JPMorgan, Morgan Stanley, and then we get Citi, Wells Fargo, BlackRock coming out on Friday. What can we expect from this overall? Well, Q2 2022, the estimated earnings growth rate for the S&P 500 is 4.3%. And if you're not used to looking at these things, you might think, well, okay, everyone's talking about recession, but earnings growth have gone up. 4.3%, that's a good thing. Well, not so much, because that level would mark the lowest earnings growth rate reported by the index since Q4 of 2020, which was at that time 4%, when really we're in the doldrums of the most severe lockdown that we had on initial outbreak of COVID Now, who are going to be the winners and losers? Well, obviously energy is, is definitely one expected to be the standout sector. Oil producers as well as miners benefiting from the surge in prices on the war in Ukraine. As a rough estimation, we're kind of looking at about a 3-to-1 outperformance of energy over other equity sectors in the S&P. Guidance though from these energy giants will be particularly key. So the likes of ExxonMobil and Shell, it will be critical to see what they think now that oil has actually reverted back down and obviously traded sub-$100. If we were looking at US oil and Brent towards those regions, what do they think now going forward? Now we perhaps we've seen the peak of prices, at least for the time being. All right, so some of the other things that we are looking at, um, is this one. This is then US CPI. It's coming out later on this week, and obviously quite a key metric, um, that alongside then what we have with the jobs, um, the unemployment rate and non-farm payrolls on Friday, which very much was— yeah, caused a little bit of price reaction on the intraday, but overall not really changing the needle for what markets are very much expecting, which is a follow-up 75 basis point rate hike to come later on this month. So the CPI is kind of looked at as just cementing that view more than anything. So we are expecting headline consumer prices are forecast to rise by a hefty 1% month on month, matching a sharp rise in May, while the annual measure is seen picking up about 0.1%, with Wall Street consensus sitting around 8.7% at the moment. So not expecting too much shock here. Obviously, we're all aware of prices going higher. And we're all aware of the Fed's intention to raise by another hefty 75 bps clip. So although this is a big data point and will be watched very closely, I guess we've got to look to outer extremes to really shape the narrative a little bit more. But all things being equal, it's likely to cement then that course of action, which is kind of baked into price for markets. The other things then that I'm watching, this is US President Joe Biden. He's poised to meet Saudi Arabian officials at the back end of the week. So I think this is through Friday and Saturday. He's going to be meeting the de facto leader, Mohammed bin Salman, MBS. In terms of their talks, obviously there's a real pressure on Biden at the moment. The timeline is reducing quite rapidly between the midterms, and he needs to kind of change the optics around his management of the ever-surging prices at the pump, which is really damaging, um, consumer morale in the US, and thus then his ability to really convey his economic control of of their economy. So he's trying to do that. And at the same time, Saudi Arabia, they do have, according to IEA estimates, short-order capacity that they could tap into and able to add in less than 90 days around 1.2 million barrels per day. On a longer-term capacity basis, in excess of 2 million. But it's whether or not they have the appetite to do that. This meeting with Joe Biden is not going to result in that. This is more about quite a radical U-turn actually from Biden's shift towards MBS to be a little bit more friendly, in more softer terms, and from where he was just a few months ago. And so needs must in terms of trying to tackle this raging inflation situation at the moment. So this is more about just rekindling those conversations with the main powers that be between the US and Saudi Arabia. And positioning. There's a lot of other parts to what's going on geopolitically in that area with the likes of Israel, Iraq, and Iran at the moment, with other Gulf Cooperation Council discussions. But overall material outcomes of this is probably going to be quite low. It's more about one of those things where they'll continue to continue talking, if that makes sense. The other things then are you've had the UK Prime Minister leadership race well underway and you've had this now ready for Rishi he's definitely been speaking to, um, by the looks of things, the American, um, strategists in terms of how he's trying to position himself from at least the aesthetics point of view. Um, so yeah, the former chancellor is in the running. There are in fact 11 leadership hopefuls now looking to become next Tory leader. One of the main things that you like to hear a lot of them talking about at the moment, just given economic conditions and the fact of a high probability of recession in the UK, is about what are they going to do with corporate taxes. And this obviously is quite a sensitive one, given that Rishi was the former UK Chancellor. Ben Wallace, who you remember from a lot of snap polls that were done following Boris's resignation last week, was seen as the favorite. However, he has said he's not running. So in terms of all the names that are running, there's a very big field. So you've got familiar names— Sajid Javid, Jeremy Hunt, Grant Schnapps, Penny Mordaunt, Liz Truss. They're all in the running now. But this is all very much as you would have expected. One thing that I can do actually is just quickly jump on Twitter. For those interested, my Twitter handle you can find here, and I've been tweeting about this stuff all the time and have done over the weekend. But here's the kind of how this works out. And so it's going to take a bit of time, and the likelihood is, as we heard from Boris, it might not be until really early September before we have a new appointed Prime Minister. And all of the candidates now put forward Each candidate has to require a minimum amount of MPs to be backed to then go forward into the first round, which then goes through then an elimination process before they get down to the final two candidates. So if you want to see that process, you can check out my, my Twitter handle. Otherwise, let's just have a look back towards the odds. At the moment, Rishi is kind of the, the main favorite, followed by Penny Mordaunt and Liz Truss at this point of view, point in time. Everyone else is kind of less than 10% of that, that pool at the moment. So definitely a three-horse race as it stands at this present point in time. The other thing I mentioned was Twitter. So you can see here a regulatory filing after the official close of markets on Friday. Musk announced he's going to walk away from that $54.20 a share deal that he had originally put up to buy Twitter. And his main thing is about the company's misrepresentation of user data, i.e. Bots. And the Twitter chairman Brett Taylor responded by vowing to enforce the deal on what he promises will be an arduous court brawl. Twitter is likely to file its suit as early as this week against Elon Musk, and there's some pretty heavyweight law firms that these two sides have got involved. To give you an idea, Twitter shares were trading around $35 post-market after this news came out the end of last week. Remember, Elon offered $54.20 at this point. And typical Elon Musk, literally a few hours ago overnight, he tweeted a meme of himself saying, basically trolling Twitter on Twitter. You can't make this stuff up, but quite funny nonetheless. And then that is it really. So in terms of other things to look out for, a quick run through of the week. You've got Bank of England Governor Andrew Bailey and New York Fed President John Williams there speaking today. Baily speaks again tomorrow on Tuesday. US CPI on Wednesday, as I mentioned. You also get the release of the Fed's Beige Book. You've also got Chinese trade data. More inflation metrics come out of the US on Thursday with PPI numbers and your regular weekly jobless claims. Then looking out for Chinese growth figures, um, so quite a big week for Chinese overall economic data points, uh, in combination with that new outbreak of that Omicron variant that I mentioned before to keep an eye on. And then G20 finance ministers and central bankers do meet at the back end of the week, and that will run through the weekend, which is also coinciding with the Biden talks with Saudi Arabia. And you've also got US retail sales as well to finish off the week. That is it. Don't forget to like and subscribe to the channel if this was useful, and I'll see you next time. Thanks very much.
