The US stock markets shrugged off recession fears, with both S&P 500 and Nasdaq gaining for five consecutive trading days last week. The tech-heavy index, Nasdaq outperformed all other major indices, up more than 4% in one week. The inflation expectation is lowered, thanks to the recent commodity market rout, though the cloudy economic outlook stays unchanged. Despite consistent vows of hawkish stance by central banks, bond traders seem no longer aggressively priced in higher rates as the benchmark US bond yields on the 10-year and 2-year notes stayed inverted for almost a whole week, repeatedly warning of an unavoidable economic recession ahead, or the world-largest economy is already in a technical recession. With the US earnings season kicking off, the performance results will tell if companies were able to weather the economic storm.
Major indices performance for the last 5 trading days
This week, we continue to monitor the world macro-economic trajectory from a variable financial market perspective. The CMC Markets Q3 outlook report (part1, part2, & part3) will be published on 11 July, along with the US companies earnings preview articles for your forward views on major trends.
Key Instruments
- Tech shares’ outperformance may suggest the hardest-hit growth sectors start to seek bottoming opportunities, despite ongoing passive sentiment across the globe. See recent Nasdaq movements
- Bets of a stance change for the BOJ have been pressuring the pair of USD/JPY, with a stand-out bearish divergence from a technical perspective. The former Japanese Prime Minister, Shinzo Abe’s assassination has added more colour to the arguments for the detrimental devaluation in Yen. Check on USD/JPY
- Although crude oil’s spot and futures markets are telling different stories, the pressure on commodity prices may continue, with growing concerns of an economic recession. See WTI pricing
- Gold lost ground due to a strong USD, along with the broad commodity market selloff. The precious metal looks losing charm on the equity markets’ comeback. Trade gold now
- Cryptocurrencies have found their footing recently, but will the rebounding trend endure? See the latest crytpo movements
Key economic data and events (11 July – 15 July)
US – CPI, PPI, retail sales, prelim UoM consumer confidence (June)
The US Consumer Producer Index (CPI) for May printed at 8.6% year on year, the highest since December 1981. The core CPI, excluding food and energy, was at 6.0%, also higher than the expectation. Energy was certainly the biggest contributor to flaring inflation. The CPI data for June that will be realese on Wednesday is expected to be even higher to 8.8% from a year ago, according to Thomson Reuters. Coupled with the greater-than-expected US non-farm payroll data released on Friday, the odds for the Fed to raise the interest rate by another 75 basis points in July have been strengthened. However, the plunged consumer sentiment, falling manufacturing PMIs, and dipping commodity prices might suggest that inflation may be peaking, which is growing bets for the Fed to pause the aggressive rate hikes from September.
The Producer Price Index (PPI), retail sales, and prelim UoM consumer confidence will be also released this week. As for the retail figure, consensus calls for 0.8% m/m vs. -0.3% the prior month, a jump from a month ago. But the real consumer power has been softened when considering the inflation figure of 8.6%. The PPI data is expected to grow at the same level as May, staying at 0.8% m/m.
China – Q2 GDP
China’s first-quarter GDP is at 4.8% year on year and the growth might have been sharply slowed due to strict covid-lockdowns in the major cities in the second quarter. Both World Bank Group and OECD have lowered their expectations for China’s GDP growth in 2022 to 4.3-4.4% from above 4.5%. But China’s recent PMIs for both May and June have topped estimates, suggesting that the second-quarter GDP figure may not be as weak as projected. China’s trade balance data will be also released ahead of the GDP figure, which will help to gauge the world’s second-largest economic growth trajectory.
New Zealand – RBNZ rate decision
With decades-high inflation of 6.9% for the first quarter, the Reserve Bank of New Zealand will be most likely to stay with the pace of a 50-basis points rate hike this week, which will be the third time in a row since April. The RBNZ is the front runner for rate hikes of all the major western central banks. However, the local business and consumer confidence have plunged to near record lows due to the rapidly rising rates and dampened global economic outlooks. Softened China's demands have also added pressure to its export prices, which may lead to another GDP contraction in the second quarter after the negative growth in the first quarter.
Canada – BOC policy meeting
It is highly expected the Bank of Canada to increase the interest rate by 75 basis points this week as the Canadian inflation expectation hit a fresh 40-year high at 7.7%. The robust Canadian labor markets will also promote a faster pace of rate hikes, with bond markets pricing another 75-bps hike in September.
Australia – employment (June)
Australia is expected to add 30,000 new jobs in June, with a lowered unemployment rate of 3.8% from 3.9% the prior month. The strong local labour force will keep the RBA’s rate hike path on track after the second 50-bps hike last week.
Europe Week Ahead
UK GDP (May)
JD Wetherspoon Q4 results
