Title: Marketmind Drawing the battle lines

Jul 22, 2022 02:47AM ET

By: AnalysisWatch

With all the excitement around the first interest rate hike since 2011 by the European Central Bank and the introduction of a new instrument to curb the sharp rise in borrowing costs, the euro and core bond yields have returned to pre-meeting levels on Thursday.

As happy as bondholders are that the ECB has raised interest rates by a more aggressive 50 basis points and believes it can do so again in September, the TTIP has proven to be strong on promises but weak on details for markets.

The ECB may be able to iron this out and clear some of the market confusion in time, but the question remains: what if markets have reason to test it earlier?

Added into the mix is the expectation that soft US economic data this week will not deter the Federal Reserve from raising interest rates by another 75 bps next week, even as the economy slows under the weight of rising inflation.

So it's no surprise that investors are singing a gloomy song on Friday.

Global stocks are set to snap a three-day run of gains; the US dollar index has recovered from Thursday's lows; and the Treasury yield curve, a proxy for recession risk, is moving deeper into negative territory.

U.S. stock futures are in the red thanks to dismal earnings from social media darling Snap Inc. that led its shares to drop 25%. It's a reminder that at the first sign of trouble, stock players are quick to abandon richly valued stocks with mega-corporate market capitalizations.

Key events that should give markets more guidance on Friday:

A government source told Reuters on Thursday that Italy's national elections will be held on September 25.

Purchasing managers' index for France, Germany, EU and UK

UK retail sales fell 0.1% in June.

Schindler cuts its 2022 revenue forecast due to slowing growth in China.