Weekly Market Outlook — There are no central bank meetings scheduled this week, but an abundance of economic news from America, Europe, and Canada is sure to keep traders busy. The G7 relaunched the newly renamed “Partnership for Global Infrastructure and Investment” on Sunday, the group also pledged to raise US$600 billion in private and public funds over five years to finance the needed infrastructure in developing countries.
US — Focus on PCE readings, ISM index & Q1 GDP
The US consumer and inflation data along with a few key corporate earnings from the major retailers will dominate Wall Street’s attention. There are several economic indicators that point to weak business activity in the coming weeks. Consumer confidence in the US will decline sharply as incomes don’t keep up with inflation.
The US core PCE price index will be released on Thursday, followed by the ISM manufacturing PMI report on Friday. PCE prices have become a key economic indicator for determining monetary policy. In spite of the decline to 4.9% from 5.2%, the index remained elevated, far above the Fed’s 2% target. The Fed may avoid more aggressive rate hikes if the PCE data continues to decline, which will help ease recent fears about a recession.
This week will also see the release of US durable goods orders and the Consumer Comfort Index for May. It is anticipated that both will show some decline. Moreover, the final US GDP figure for the first quarter is due on Thursday, last reported at a contraction of 1.5% q/q. A revision of 1.4% is expected. For investors, second-quarter US growth is crucial as a two-consecutive negative GDP defines an economic recession.
Fed watchers will receive more insights from Powell while he attends the ECB Forum on Central Banking. There will also be appearances by Fed officials Daly, Mester, and Bullard.
While the US economy is also losing momentum, the dollar is likely to remain on top given the troubles of its rivals – the Euro with energy, the Yen with the BoJ, and the Sterling with unstable risk sentiment.
EU — No sign of a slowdown in inflation
It’ll be a busy week for Christine Lagarde as she hosts peers at the ECB Forum on Central Banking in Portugal. Traders will no doubt be glued to President Lagarde’s every word throughout the week. Another highlight is the flash inflation data on Friday. As of now, traders are pricing in a 25-basis point hike in July, then at least a couple of 50 basis point hikes later on. Despite a late start by the ECB, there is clearly room for more, and June’s inflation data could lead to a massive lift-off next month.
There’s no easing up the fuel standoff with Russia, which could lead to rationing this winter if reserves aren’t replenished. A sharp decline in business confidence and a decline in new orders indicate that the economy is slowing rapidly and that the ECB’s time window for raising interest rates is closing. In light of the weakening data pulse, market pricing suggests interest rates will end the year at 1% instead of the current zero-level.
The Euro is unlikely to reverse given the high energy prices and red recession indicators. Over the years, Eurozone trade surpluses have always been the Euro’s advantage. Oil prices have now flipped this into a trade deficit. Thus, any relief rallies will likely be shallow until energy prices stabilize.
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UK — GDP & revised PMIs make headlines
BoE Governor Andrew Bailey’s participation in the ECB Forum on Wednesday, alongside ECB President Christine Lagarde and Fed Chairman Jerome Powell, deserves special attention.
The BoE has been concerned about deepening the recession by super-sizing its rate hikes. However, the MPC may be tempted shortly with more central banks moving in that direction. On Wednesday, Bailey might drop such hints. Revisions to GDP and manufacturing PMI are the highlights of the data from tiers two and three.
Canada — Monthly GDP due on Thursday
The Canadian economy is forecast to grow by 0.3% m/m in April, a decrease from 0.7% in March. As a result of a decline in exports, first-quarter GDP growth slowed to 3.1% from 6.6% in the fourth quarter of 2021.
With inflation at 7.7%, the BOC raised rates by 125 basis points so far to ease the country’s inflationary pressures.
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