Another ECB Rate Hike Could be Policy Mistake as Energy Shock Eases — Market Talk

1057 ET - Another interest-rate hike from the European Central Bank could become a policy mistake, ING global head of macro Carsten Brzeski says in a note. ECB President Christine Lagarde reiterated Monday that the June rate increase was driven by a higher inflation outlook. But with the recent drop in energy prices, chances have increased that forecasts could show inflation below 2% in 2027, Brzeski says. Judging from Lagarde's comments and other ECB officials in recent weeks, that wouldn't stop the ECB from hiking again, he notes. "As long as the core inflation forecasts aren't revised downwards, there appears little in the way to stop the ECB." But a new debate could emerge over looking through what could be a temporary energy-price shock, he says. (edward.frankl@wsj.com)

1043 ET - Credit investors should pay attention to underlying economic risks rather than dwelling on credit labels like public bond, direct loan, leveraged loan and so on, BlackRock Investment Institute say in a note. Factors such as recurring cashflow and lender protections are more accurate metrics, they say. "We favor credit where income is backed by fundamentals - and where investors are paid for liquidity and recovery risks." (miriam.mukuru@wsj.com)

1026 ET - The median U.S. luxury home sale price rose 4.7% year over year to $1.37 million during the three months ending May 31, Redfin says. That's more than triple the 1.5% gain in non-luxury sale prices. Luxury prices are increasing largely because demand for luxury homes is on the rise. Pending sales of luxury homes rose 5.2%, compared with a 3.6% gain in non-luxury pending sales, which is deceleration from the month before. High-end homebuyers are less sensitive to affordability pressures and financial instability. Overall homebuying demand has been fairly slow because mortgage rates and home prices remain high. Ultra-wealthy Americans have the freedom to make big purchases even in uncertain times. (chris.wack@wsj.com)

1006 ET - The Japanese yen reaches a new 40-year low against the dollar, though moves are limited as traders stay on high alert for any interventions by the country's authorities to halt the currency's decline. Japan could deliver another round of foreign exchange interventions, while the Bank of Japan could raise interest rates at their next meeting in July in response to the yen's weakness, TrinityBridge's Tony Whincup says in a note. "However, [Prime Minister Sanae] Takaichi's long-term economic blueprint calls for monetary policy that bolsters private demand, signalling a preference for keeping borrowing costs low." The dollar rises 0.3% to 162.50 yen, the highest since 1986, according to LSEG. It last trades at 162.41 yen. (renae.dyer@wsj.com)

0957 ET - German inflation shows very few signs of any knock-on effects from higher energy prices so far, ING's Carsten Brzeski says in a note. EU-harmonized price growth fell to 2.7% in June from 2.4% in May. What's even more important, he says, is that compared with last month, prices dropped again, the first time since the summer of 2024 that prices dropped for two months in a row. Inflation should accelerate again next month, given the end of the German government's tax rebate on fuel. However, there is still little evidence of any self-reinforcing inflationary spiral. "After last night, the sales of Germany's national football team merchandise could be another unexpected disinflationary driver in July," he adds. (edward.frankl@wsj.com)

0945 ET - Canada's economy isn't in recession, says Canadian Chamber of Commerce's Andrew DiCapua. A rebound in GDP with 0.5% on-month growth in April shows the economy is still chugging along, even if growth isn't especially strong, the economist says. DiCapua says that for the Bank of Canada, the recovery supports the view that risks are fairly balanced. "Higher inflation driven by temporary oil price spikes is one thing, but there isn't enough demand in the economy right now to suggest growth is about to reignite inflation," he says. (robb.stewart@wsj.com; @RobbMStewart)

0942 ET - Recession talk in Canada, sparked by a 0.1% annualized decline in 1Q, was for naught based on April GDP data, says Douglas Porter, chief economist at BMO Capital Markets. GDP by industry rose 0.5% in April, and 1.1% on a 12-month basis, which marks the fastest pace of year-over-year growth in seven months. Porter says GDP is on track for 2%-plus annualized growth in 2Q, given early estimate for a 0.1% jump in May. The May estimate "will serve as a reminder that Canada is still growing slower than potential," Porter says. "Nevertheless, it's also clear that the small two-quarter dip in output was a false alarm on the recession watch." (paul.vieira@wsj.com; @paulvieira)

0940 ET - Canada's GDP data for April should take some air out of the recent recession talk in the country, says Marc Ercolao, economist at TD Bank. GDP by industry rose 0.5% in April from the prior month, and that leaves quarterly GDP tracking above 2% annualized, he says. GDP growth in April was largely fueled by the commodities sector, although 14 of 20 sectors tracked by Statistics Canada recorded growth in the month. Ercolao says the economy is grinding through a soft patch. For the Bank of Canada, he adds, "this argues for patience rather than a pivot." He says the data will take pressure off BOC to cut rates to deal with the economic slump. (paul.vieira@wsj.com; @paulvieira)

0937 ET - Bitcoin ETFs tracked by CoinGlass continue to shed value, with another $231 million liquidated from the market through yesterday. June has been a tough month for bitcoin ETFs, posting net outflows totaling $4.3 billion--including eight straight days of net outflows recorded by ETFs, says Konstantinos Crysikos of Kudo.com in a note. It's the largest monthly withdrawal seen all year, with macroeconomics currently favoring bonds and currency, not riskier assets like bitcoin. At this level, bitcoin is close to crossing over the year-low set last week. Bitcoin is down 3% this morning, while ethereum sinks 3.6% and XRP goes down 3.1%. (kirk.maltais@wsj.com)

0926 ET - Quarterly growth in Canada likely resumed after data shows a sizable jump in GDP by industry in April, says Michael Davenport from Oxford Economics. GDP by industry rose 0.5% in April from the prior month, bringing relief to policymakers after two straight quarters of contraction. Davenport, however, says Canada's economy faces stiff headwinds, which includes US trade policy, stagnant population growth and the lingering effects of the global energy shock. Davenport, an economist, says economic output should pick up steam in 2H but warns Canada's economy could find itself on a permanently lower path should--as expected--the Trump administration opt not to renew USMCA. That would subject the trade pact to annual reviews, he says, extending the level of uncertainty hovering over Canada. (paul.vieira@wsj.com; @paulvieira)

0925 ET - The Japanese yen is unlikely to extend its falls against the dollar much further as it hits a 40-year low, UBS Global Wealth Management analysts say in a note. "We would caution against chasing the yen weaker, given already crowded investor positioning, and authorities' readiness to intervene," they say. In coming months, the yen could recover against the dollar if markets scale back expectations for Federal Reserve interest-rate rises. However, in the nearer term, the yen is likely to stay under pressure from persistent negative rates adjusted for inflation even though the Bank of Japan is on track to raise rates further, they say. The dollar rises to as high as 162.50 yen, according to LSEG. (renae.dyer@wsj.com)

0916 ET - Bitcoin is dragging to close out the month and the quarter, with the token down 2.9% to $58,494, according to data from LSEG. With Strategy expected to sell some of its massive bitcoin treasury, traders appear to be anticipating another slide in prices--although how much lower bitcoin can get is up for debate. Strategy holds 4% of all of the circulating bitcoin in the world, which is more than enough to move prices in any direction. Ethereum falls 3.8% to $1,554, XRP is down 3.3% to $1.03, and solana falls 4.2% to $72.12. (kirk.maltais@wsj.com)