Further turbulence ahead?
Financial markets enjoyed a little reprieve last week following a raft of central bank announcements the week before. Next week sees the focus remain on policymakers, with many set to appear at the ECB Forum on Central Banking in Portugal.
Recessions have gone from being a potential consequence of high inflation and rapid monetary tightening to an increasingly likely scenario. Central banks are pushing back less and less against a period of negative growth, with Fed Chair Powell last week acknowledging it is “certainly a possibility”.
Investors are looking for any indication that inflation has peaked and is on a quick and sustainable path lower, enabling central banks to take the foot off the gas and avert too much damage to the economy. We may have to wait a while longer yet.
Wall Street will continue to focus on the strength of the US consumer and pay close attention to personal income/spending data, another set of inflation readings, and a few key corporate earnings from the major retailers. A wrath of economic indicators are expected to confirm the trend of weakening business activity. US consumer confidence is expected to post a sharp decline, as personal incomes struggle to keep up with inflation. Earnings from Nike, H&M, Bed Bath & Beyond, and Wall Greens could give further insight as to how sharp of deceleration we are seeing with consumer spending.
Fed watchers will get more comments from Chair Powell as he attends the ECB Forum on Central Banking. Fed’s Daly, Mester and Bullard also have scheduled appearances.
A busy week for Christine Lagarde as she welcomes peers to the ECB Forum on Central Banking in Portugal. President Lagarde will make appearances throughout the week and traders will no doubt be clinging to her every word.
Flash inflation data on Friday is another highlight. Traders are already pricing in a 25 basis point hike in July then at least a couple of 50 basis points thereafter. There’s clearly room for more after a late start by the ECB and the June inflation data could be the catalyst for a super-sized lift-off next month.
BoE Governor Andrew Bailey’s appearance at the ECB Forum on Wednesday, alongside ECB President Christine Lagarde and Fed Chairman Jerome Powell is clearly the highlight. The BoE has been reluctant to super-size its rate hikes for fear of deepening the economic slump. But with more and more central banks moving in that direction, the MPC could be tempted soon. Perhaps Bailey will drop such hints on Wednesday.
Data is mostly tier two and three with revised GDP and manufacturing PMI the highlight. Pressure is ramping up on Boris Johnson after the Conservatives’ double by-election defeat and the resignation of the Tory Party Chair, Oliver Dowden.
There are various data releases next week that may shed some light on how the economy is holding up against the backdrop of severe Western sanctions and major shifts in interest rates and the currency. Unemployment is expected to jump to 4.5% from 4% in May, with retail sales slipping 5.5% at the same time. Real wages are also expected to have slipped 6% year on year.
No doubt the Kremlin will be focused on events in the Bavarian Alps and Madrid next week, with Russia’s invasion of Ukraine top of the agenda of the G7 and NATO summits.
Only tier two and three data next week, with PPI inflation probably the highlight as the SARB races to get control of inflation.
The CBRT remains committed to its monetary policy experiment no matter the cost. It kept interest rates unchanged at 14% on Thursday despite inflation running at 73.5%. Next week offers mostly tier two and three data including the manufacturing PMI and retail prices on Friday.
SNB Chairman Thomas Jordan suggested this week that inflation data highlights the need to tighten monetary policy further after last week’s surprise 50 basis point hike. He said it’s unclear when that would be though so traders will be on alert at all future meetings. Considering the SNBs history of surprises, we can’t ignore the possibility of an inter-meeting hike. Retail sales and manufacturing PMI are also on offer next week.
China releases industrial profits on Monday but most attention will be on official PMIs on Thursday, and Caixin PMIs on Friday. The data should show a rebound in both manufacturing and services following the Shanghai and Beijing reopenings. Weaker numbers will prompt slowdown fears and prompt the selling of China equities.
India’s balance of payments and PMIs on Friday have downside risks thanks to the wheat export ban, droughts, stress in the electricity sector and a weak rupee. That could prompt more INR selling with it remaining near record lows this week despite US dollar strength fading internationally.
Australian retail sales on Wednesday has downside risks which could prompt slowdown fears. That could cause short-term weakness in the Australian dollar. Otherwise, local equities continue to track US markets although if resource price weakness persists next week, that could start to weigh on local equities.
The Australian dollar has downside risk as it finishes at weekly lows. Its movements continue to reflect its role as a proxy for global investor sentiment by traders.
New Zealand releases ANZ business confidence on Thursday and ANZ consumer confidence on Friday. Both have downside risks as interest rate rises and cost-of-living increases continue to bite, and weak data could spur local equity selling.
Poor numbers could weigh on the New Zealand dollar as well, which like the Australian dollar, is finishing the week near recent lows. Like AUD, NZD’s overall direction continues to be dictated by swings in risk/recession sentiment among international investors.
Japan retail sales should improve on Wednesday as it continues its reopening phase, and industrial production Thursday should benefit from a weaker yen. However, the Nikkei 225’s direction has been highly correlated with the Nasdaq of late and that could continue. Friday’s Tankan survey may cause some short-term volatility.
USD/JPY remains highly volatile and entirely correlated to the US/Japan interest rate differential. We may still be a long way from Bank of Japan intervention.
Singapore PPI should remain near 30% YoY next week but appears mostly priced into the market. Slowdown concerns, reflecting the situation in China and the US will continue to weigh on local equities. Inflation readings this week appear to have removed the immediate risk of the MAS tightening policy before its scheduled October meeting.
Saturday, June 25
Spain’s government holds an extraordinary cabinet meeting to address inflation concerns
Sunday, June 26
G-7 summit two-day event takes place in the Bavarian Alps
Monday, June 27
US durable goods
ECB Forum on Central Banking; speakers include ECB President Lagarde, Fed Chair Powell, BOE Gov Bailey
UK Chancellor Sunak takes questions from MPs
China industrial profits
Japan leading index
Tuesday, June 28
US wholesale inventories, US Conference Board consumer confidence
Mexico international reserves, unemployment
Primary elections in the US states of Colorado, Illinois, New York, Utah, Mississippi, South Carolina, Oklahoma and Nebraska.
BOE Deputy Governor Cunliffe speaks
Fed’s Daly speaks to LinkedIn’s chief economist
Wednesday, June 29
US Q1 GDP (third reading)
Fed’s Mester speaks on a panel at the ECB Forum
Fed’s Bullard speaks at a virtual community development event
Australia retail sales
Thailand capacity utilization, production index
Russia industrial production
Eurozone economic confidence, consumer confidence
Japan retail sales, consumer confidence index
EIA crude oil inventory report
Thursday, June 30
US personal income and spending data, PCE readings, initial jobless claims
Czech Republic GDP
Sweden (Riksbank) central bank rate decision: Expected to raise rates 50bps to 0.75%
South Africa trade
Eurozone and German unemployment
Australia job vacancies
Japan industrial production, housing starts
India fiscal deficit, eight infrastructure industries
New Zealand business confidence, activity outlook
Singapore money supply
Friday, July 1
US construction spending, ISM Manufacturing, light vehicle sales
Susan Collins takes office as president of the Boston Fed
Eurozone CPI, manufacturing PMI
Eurozone manufacturing PMI
Germany manufacturing PMI
UK manufacturing PMI
Australia manufacturing PMI
Thailand manufacturing PMI
India manufacturing PMI
New Zealand building permits, house prices, consumer confidence
Australia house prices, commodity index
Singapore home prices
Thailand forward contracts, foreign reserves
Japan vehicle sales, Tokyo CPI, unemployment, PMI
China Caixin manufacturing PMI
Sovereign Rating Updates
Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at firstname.lastname@example.org. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.