Oil is falling amid rumors of the suspension of the federal gasoline tax. Inflation continues to rise

Fed Chairman Jerome Powell visited the Senate Banking Committee yesterday and will visit the House of Representatives today. Mr. Powell noted that the Fed is “strongly committed” to curbing inflation and pointed out that at this point, the economy is strong enough to withstand the interest rate increases used as a tool to achieve this goal. Powell also said that the pace of future rate hikes would depend on what inflation numbers they see. But the possibility of a recession due to rising interest rates remains. At the same time, a Fed rate hike will not likely result in lower gas or food prices.

Fed spokesman Evans noted yesterday that a 75 basis point rate hike in July is reasonable for discussion and does not see the need for a 100 basis point hike. The odds that the Fed will hike 0.75% again at its next meeting are now nearly 100%. And this scenario is not yet priced in, so analysts expect another wave of declines in stock indices.

Canada’s Consumer Price Index increased by 1.4% last month (forecast +1%, previous +0.6%). Thus, inflation in Canada has reached 7.7% year on year, which is a record since 1983. Core inflation (which excludes food and fuel prices) rose from 5.8% to 6.3% year/year. Analysts believe Canada’s sharp rise in inflation will reinforce investor expectations for a more aggressive interest rate hike by the Bank of Canada.

The ECB and Europe’s national central banks have spent three months on the necessary tool to prevent fragmentation that would accompany the slow normalization of European interest rates in response to the rapid rise in inflation, caused partly by the Russian invasion of Ukraine. For now, analysts believe the ECB’s current approach is working. But the ECB’s decision-making discretion is very narrow, not least because of growing political pressure in Germany, France, and Italy.

The UK Consumer Price Index increased to 9.1% year on year (forecast 9.1%, previous 9.0%). Monthly, inflation rose by 0.7%. The last time such a level of inflation was seen was in 1982. Analysts believe the central bank will be forced to take stricter measures at its next meetings.

The head of the Swiss National Bank, Thomas Jordan, indicated yesterday that inflation data shows the need for further monetary policy tightening, but it is unclear when.

Oil fell yesterday as the US plans a tax vacation on gasoline. On Wednesday, Biden said he asked Congress to consider a three-month suspension of the federal gasoline tax of 18.4 cents a gallon and urge states to suspend fuel taxes. The president called on refiners to ensure that all savings were passed on to the American people. The US Energy Secretary Jennifer Granholm will meet with the oil industry today to find ways to lower oil and fuel prices.

Asian markets closed yesterday in the negative territory. Japan’s Nikkei 225 (JP225) decreased by 0.37%, Hong Kong’s Hang Seng (HK50) fell by 2.56%, and Australia’s S&P/ASX 200 (AU200) closed down by 0.23%.

Chinese President Xi Jinping held a summit on Wednesday that endorsed a plan for the healthy development of China’s large payments companies and fintech sector. It could give a boost to tech companies.

Japan’s manufacturing activity growth slowed in June as China’s strict restrictions over COVID-19 affected manufacturing demand, even as service sector sentiment hit a nearly nine-year high. China’s quarantine over COVID-19 disrupted supply chains, severely affecting trade-dependent economies such as Japan.

According to S&P Global, Australia’s global manufacturing PMI increased to 55.8 in June from 55.7 in May. Services business activity fell to 52.6 from 53.2.

Singapore’s Consumer Price Index reached 5.6% y/y (forecast 5.5%, previous 5.4%). The core Consumer Price Index, excluding private fuel and food costs, rose to 3.6% year-on-year (forecast 3.5%, previous 3.3%).

South Korea’s won fell below the psychological level of 1,300 per dollar for the first time in 13 years amid fears of a global economic slowdown.