[Daily Outlook] U.S. Consumer Confidence Falls to Three-Month Low as High Inflation Drags

2022-06-01 11:13:17


U.S. Consumer Confidence Falls to Three-Month Low as High Inflation Drags.

U.S. consumer confidence fell to its lowest level since February in May, highlighting the adverse impact inflation, which has reached multi-decade highs, is having on the U.S. public's view of the economy. The World Association of Large Business Research's consumer confidence index fell to 106.4 in May, compared with an upwardly revised 108.6 in April, and the median forecast of economists surveyed by Bloomberg was 103.6. The data suggest that continued high inflation, especially in categories such as food and energy, is weighing on consumer confidence and straining household budgets. And it is forcing more and more Americans to tap into savings and use credit cards to make purchases. According to the report, consumers expect prices to rise 7.4 percent over the next year. Willingness to buy cars, homes and appliances all fell in May. "The fact is that inflation remains at the top of consumers' minds, and inflation expectations in May were essentially unchanged from April's high," said Lynn Franco, senior director of economic indicators at the World Large Business Research Institute.


Eurozone inflation hits record high as ECB mulls how soon to raise rates.

Eurozone inflation rose to a record high, which is likely to further debate within the European Central Bank on how soon interest rates should be raised from record lows. The eurozone consumer price index (CPI) jumped 8.1% year-on-year in May, beating the median estimate of 7.8% among economists surveyed by Bloomberg. The acceleration in inflation was driven by food and energy prices, with Russia's invasion of Ukraine leading to a sharp rise in commodity prices. Excluding these volatile items, the indicator rose 3.8%. While the U.S. and U.K. have begun to raise interest rates at full steam, the ECB is preparing to raise rates for the first time in more than a decade in response to the unprecedented price spike in the eurozone. ECB President Christine Lagarde said last week that she may raise rates by 25 basis points at its July and September meetings, respectively. Philip Lane, the central bank's chief economist, also supported this view on Monday, saying that action by such a margin is the "benchmark pace" for exiting stimulus measures, which also include large-scale bond purchases.


Russia to cut gas supplies to Denmark ahead of referendum.

Russia will stop exporting natural gas to Denmark as the country approaches a referendum on defense provisions for EU membership. Orsted A/S, Denmark's largest utility, said Russia will end gas deliveries as of Wednesday. The company said Monday it does not intend to comply with a demand for payment in rupees made by Gazprom and Putin earlier this year. Denmark will vote Wednesday on the EU military deal, a referendum the government is holding in response to Russia's invasion of Ukraine. Polls show the Nordic country, which has traditionally avoided deeper integration with the EU, plans to join the defense clause and further distance itself from the EU. Danish Prime Minister Mette Frederiksen said she supported Orsted's decision not to pay rubles, though the government did not intervene from it. The Danish government holds a 50.1 percent stake in Orsted.


EU allegedly to kick Russia's largest banks out of SWIFT in new round of sanctions. 

The European Union is planning a sixth round of sanctions against Russia that would potentially remove the country's largest bank - Sberbank - from the SWIFT financial messaging system. According to people familiar with the discussions, the proposed restrictions would also target the Credit Bank of Moscow and the Russian Agricultural Bank. This comes after the EU, the U.S. and the U.K. have banned several Russian banks from using the SWIFT system. The EU would still spare Gazprombank, which is handling European payments to Russia for natural gas shipments. EU leaders met in Brussels for a two-day summit late Monday to reach consensus on pushing for a partial embargo on Russian oil, paving the way for a sixth round of sanctions.


Wall Street remains pessimistic about the outlook for U.S. stocks, believing the market rally will be short-lived.

A growing number of Wall Street strategists believe last week's stock market rally was a sham as the U.S. economy and corporate earnings growth are at risk amid stubbornly high inflation. The S&P 500 stopped its longest losing streak in two decades last week, yet it moved lower again Tuesday. Analysts at banks and investment institutions such as Morgan Stanley, Bank of America and Oppenheimer expect the stock market to fall further in the future. Michael Wilson of Morgan Stanley, one of Wall Street's most prominent bearish people, told clients in a report that the recent rally was due to an oversold market and investor speculation that the Federal Reserve could pause interest rate hikes in September. He believes that the market's earnings forecasts are still too high and expects the S&P 500 to be close to 3,400 by mid-August, the end of the second-quarter earnings season, meaning 18% below Friday's close.

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