Week Ahead: Rate Hikes Continue
Will a recession follow?
The month started slowly in financial markets, but Thursday finally shook things up and Friday continued into the weekend. With so much to look forward to next week, it’s going to get really interesting.
Wednesday is naturally the high point as traders look for further indications of how much tightening will be needed and whether it will ultimately tip the economy into recession. Inflation data did not make good reading for policy makers.
On Thursday, but could he be tempted to go into super-size like many of his peers? Markets suggest there is an outside chance. Then there’s Friday which has a very different problem than many of its peers.
The main event of the week will be the FOMC decision on Wednesday. The Fed is poised to hike rates by half a point and signal more to come as inflation remains scorching. The Fed will need to signal that more aggressive hikes are warranted and that it will do what is necessary to bring inflation under control.
It’s a busy week for economic data and it will start on Tuesday with a story similar to Friday’s inflation report. In addition to the Fed’s decision, Wednesday has two big reports: The is expected to show a modest rebound. Most traders will be fixated on May, which could show that consumer spending is weakening. Thursday will see the release of , and the .
The 2022 midterms aren’t that far away and many traders will be watching closely to see if the Republicans have a clean sweep. Tuesday has primaries in Maine, Nevada, North Dakota and South Carolina.
A calm week for the region with definitive data among the highlights. Big upward revisions would add to the misery of households and businesses, not to mention the ECB which finally understood that something had to be done.
And it absolutely will, a little next month and maybe even more next quarter. The ECB really knows how to deal with pressing issues. Speeches from central banks, including Christine Lagarde later in the week, will be interesting, although markets have already taken the lead and forecast 1.5% rises this year. Why bother waiting for the ECB to inevitably catch up?
The first round of the French legislative elections will take place on Sunday.
The highlight next week is obviously the Bank of England meeting, with the central bank set to hike another 25 basis points to 1.25%. Given how many other central banks have shifted gears recently, could the MPC be persuaded to join the 50bp club?
Markets see a one in three chance of this happening. It should probably be higher given that the same central bank expects double-digit inflation later in the year.
Next week also features the usual data dump which comes around the third week of the month, with retail sales and numbers all due. Needless to say, it’s going to be hectic for the .
Next week is relatively calm for Russia, with revised GDP the only notable release. Le back to pre-war levels on Friday at 9.5%, but remains close to recent highs thanks to a booming current account as imports slumped in the wake of the invasion.
The central bank has been patient in cutting rates again in hopes of lowering them, which fell to 17.1% in May from 17.8% in April, giving the impression that they may have -to be peaked.
With the economy performing better than expected and inflation heading in the right direction, further rate cuts could follow in a bid to revive consumer demand and support the economy.
A quiet week with Wednesday the only notable outing.
Turkey does not offer much next week, with the focus still on the collapse of the most vulnerable emerging currencies being penalized in the global tightening environment.
While the Turkish government and central bank repeatedly try to deflect blame for the currency’s woes and surge, the blame is much closer to home as the monetary experiment continues to go from bad to worse. .
China releases , and Wednesday and the 1-year MLF rate in the second half of the week.
Chinese data is expected to improve from abysmal April numbers in May as Shanghai and Beijing reopen, but will remain weak to negative. The 1-year MLF rate is expected to remain unchanged at 2.85% as China persists with targeted stimulus aimed at MSMEs.
The main driver of volatility will be the COVID-zero policy, with China announcing that 7 of Shanghai’s 16 districts will be tested over the weekend. Markets have been complacent about COVID-zero, believing China to be one and finite.
Unfortunately, Omicron doesn’t work that way and if strict lockdowns spread again, Chinese stocks will be pummeled. Watch for developments on this front over the weekend and into the week.
India hiked rates again last week and will be closely watching Wednesday’s May inflation release. is expected to fall to around 7.0% from 7.80%, but a higher print will lead to higher RBI tightening expectations, which could weigh heavily on local equities.
Notably, the RBI rate hike and hawkish outlook failed to benefit this week and it remains near record lows at 77.800 per US dollar. A hawkish FOMC next week and weaker inflation data could trigger another bout of currency weakness. High prices are also another serious headwind.
Australia Thursday is the only material data point this week and is generally only good for intraday volatility.
Australian stocks and the AUD remain under pressure with the particularly negative price action on . Unstable risk sentiment globally has pushed the currency lower, and fears over further Chinese lockdowns also weigh heavily as a proxy for China. Readers should watch for virus developments in China for AUD directional entries.
New Zealand on Thursday and Friday are both expected to pull back sharply. Nerves continue to mount around New Zealand’s economy as it slows as the RBNZ tightens policy.
Poor data this week could weigh heavily on the , which, like AUD/USD, is also extremely vulnerable to negative virus developments/risk of a downturn from China this week.
The Bank of Japan announces its decision on Friday, a day after the FOMC announcement (Asian time). Despite the huge drop in the Japanese yen last week, it would be a huge surprise if Japan tweaked its monetary policy.
Given the weight of long positioning there, even a slight tightening move by the BOJ could lead to a sharp correction in USD/JPY.
Otherwise, the yen continues to take a beating as it climbs back above 3.0%, broadening the .
Japan publishes Monday, and the Tankan survey and Tuesday. Both should show slight improvement on economic reopening and a weaker yen, but will only boost short-term intraday liquidity.
Singapore comes out on Friday. A volatile series and lackluster data could be a short-term negative for local equities. The SGD has been heavy this week and negative virus developments from China in the coming week could accelerate the strength.
Sunday June 12
- France organizes the first round of legislative elections
- World Trade Organization begins ministerial meeting
Monday, June 13
- Medium-term loans in China
- India CPI
- Japan economic conditions index
- New Zealand net migration
- Turkey current account, industrial production
- UK industrial production, trade data
- Norway monthly GDP
- Luis De Guindos of the ECB participates in a meeting on “The Challenges of Strengthening Financial Stability in the Recovery Phase from the Corona Pandemic” organized by the Arab Monetary Fund.
- Italian Prime Minister Mario Draghi visits Israel
tuesday june 14
- American PPI
- Australian household spending, business confidence
- Germany CPI, ZEW survey expectations
- India trade, wholesale price
- Japanese industrial production, capacity utilization
- Mexico’s international reserves
- New Zealand food prices
- Claims for unemployment insurance in the UK, unemployment
- ECB’s Schnabel speaks at Paris 1 Panthéon-Sorbonne University
Wednesday June 15
- FOMC decision: raise rates by half a point and update economic projections
- US cross-border investment, trading stocks, empire making, retail sales
- CPI Poland
- CPI Germany
- CPI France
- CPI Sweden
- Australian consumer confidence
- Housing starts in Canada, sales of existing homes
- China retail sales, industrial production, registered unemployment rate, fixed assets, residential property sales
- Euro zone industrial production, trade balance
- Machinery orders in Japan, tertiary index
- New Zealand BoP, current account to GDP ratio
- GDP of Russia
- Retail sales in South Africa
- ECB President Christine Lagarde takes part in a discussion organized by the London School of Economics
- Mario Centeno, Pablo Hernandez of Cos, Klaas Knot and Joachim Nagel of the ECB speak at the Young Factor web event
- ECB’s Panetta makes an opening statement during a hearing on the digital euro before the European Parliament’s Committee on Economic and Monetary Affairs
- British Prime Minister Boris Johnson is due to answer questions in Parliament
Thursday June 16
- US housing starts, first jobless claims
- Unemployment in Australia, consumer inflation expectations
- Real estate prices in China
- Registrations of new cars in the euro zone
- One week deposit rate in Hungary
- CPI Italy
- Japan trade, department store sales
- New Zealand GDP
- Trade of Spain
- Swiss rate decision: No changes expected with policy rate
- UK BOE Rate Decision: Expected to raise Bank Rate by 25 basis points to 1.25%
- ECB’s Centeno, de Cos, de Guindos, Knot, Vasle, Visco and Villeroy speak at the Young Factor web event.
- ECB’s Panetta speaks at the European Payments Council 20th anniversary event in Brussels.
- ECB’s Vasle speaks at a Slovenian banking conference.
friday june 17
- US Conference Board leading index, industrial production
- BOJ Rate Ruling: Stick to Rates
- Eurozone CPI
- Hong Kong unemployment rate
- Trade Italy
- UK retail sales
- New Zealand PMI
- Singapore non-oil domestic exports, e-exports
- Thailand’s foreign exchange reserves, futures, car sales